4) Home Warranties
What It Is – A warranty that will supposedly cover repairs or replacements for your expensive home appliances – dishwashers, refrigerators, hot water heaters, furnaces, etc. They’re sold primarily online and through radio ads.
How It Works and Why It’s a Trick – You’ll often notice that in their ads, they say that they’ll pay for 100% of covered repairs. The key word is “covered”. If you read the fine print (and there’s usually lots of it), there are so many catches, exclusions, caveats and exceptions, the odds are that when something actually breaks, you won’t be covered for one reason or another. Furthermore, they often charge a “service fee” for each repair which can sometimes be hundreds of dollars. This of course is in addition to the cost of the warranty.
How To Protect Yourself – Consider an extended warranty when you first purchase your appliances (read those carefully also). But ultimately, you’re usually better off just putting some money aside to cover unexpected repair costs. Remember, these warranty companies make big profits and that’s because they pay out far less than they charge you.