Service contracts for your major applicances, car or furnace offer peace of mind at a relatively high cost. For a specified period an agency agrees to provide labor and parts to keep your appliances and furnace working or repair the engine and major drive-line components of your car. Generally, these are bad buy -- for several reasons.
Typically, a service contract covers the period when breakdowns are least likely -- from the end of the warranty period through two, three, or four years. Once an appliance has been debugged through its warranty period, it should work for years with few problems.
Prices for service contracts are set to cover the costs of servicing expected breakdowns, nuisance calls, educational calls and a little profit -- plus a fudge factor in case someone guessed wrong. Persons with a service contract typically call for more service than those without coverage.
If you own numerous appliances and are reasonably alert, you can avoid unnecessary calls or show-me-how serivce when you failed to follow instructions. Recognize, however, that you will need service occasionally.
Instead of paying premiums for service contracts, however, set aside an equal amount in a savings account. Pay for any legitimate service calls out of your special account. With several appliances, furnace and a car not covered -- and premiums going into your special account -- you can expect a surplus after one or two years.
Finally, decide before you call a repair person whether you should buy a new appliance or fix an old machine. Once a washing machine has operated for 10 or 12 years, it may not be worth spending $50 to $75 on a major repair. Use cash as a down payment on a new machine instead.