As we hurtle towards Christmas at breakneck speed, the organized among you will no doubt already have your gifts purchased, wrapped and waiting for the big day itself. For the rest of us, it remains on our to-do lists as we ponder what to buy for whom and whether to purchase a warranty, extended warranty or leave our gift-receivers at the mercy of misadventure. However, given that 31% of U.S. citizens are expected to spend more than $700 during this festive season on gifts for themselves and others, it is worth considering the role of different warranties and the goods they are applied to. (For more about warranties, read Extended Warranties: Should You Take The Bait?)

TUTORIAL: Budgeting Basics

Warranty and Extended Warranty: What's the Difference?
When purchasing any item, you face a decision concerning whether to buy warranty and the nature of protection that you want. While all goods are sold with an independent and standard manufacturer's warranty, this typically only covers particular parts or types of damage for a limited period of time. In addition to this, you retain the option to purchase an extended warranty. An extended warranty can be procured with any given product and provides cover against all parts and for as long a time as your money can buy.

So, while an extended warranty can provide long-term peace of mind or provide a gift that is covered against any form of damage, it comes at a considerable cost. This can be as much as 50% of the initial purchase cost according to the United Kingdom Department for Business, Enterprise and Regulatory Reform, which is a vast financial outlay and provides varying degrees of value depending on the product itself. It is also worth remembering that these policies are entirely optional, and any decision to take one should be based on the nature, cost and availability of the goods you are buying.

Should I Purchase Warranties for Gifts?
So, how does this understanding help you when procuring gifts? Well, it at least makes you aware of your options. This is the key to saving money as a consumer in the modern age. Extended warranties can provide excellent value, but this is dependent on several factors concerning both the product itself and the beneficiary. For example, though it may cost a considerable sum of money to gain an extended warranty on gift items such as laptops or tablets, the fact that they are portable, at risk of damage while in transit and expensive to replace make them ideal for an extended warranty.

Insurance is another factor often forgotten while under the spell of a talented sales rep, and this a significant consideration when buying a gift for someone else's home. In most cases, the recipients of your gift will boast at least some form of home insurance, in which case items such as televisions, personal computers and kitchen appliances will be covered by any existing homeowner or renter's policy. This would generally render an extended warranty redundant and entirely inappropriate, as well as a huge waste of your hard earned cash. (To learn more, see Do You Need A Home Warranty?)

What to Be Wary of
With these things in mind, what about more specific gift items that you may wish to purchase? We have already discussed how portable and expensive media devices like iPods and laptops would be suitable for extended warranties, and the same principle can be applied to automobiles. If you were to buy a first car for your child for instance, an extended warranty would not only provide additional security to a new and anxious driver, but also afford cover to a basic auto insurance policy that best reflects the value of the vehicle.

For any product that is high in value or uniqueness, and likely to be exposed to risk outside of the home, an extended warranty can prove to be a wise acquisition. However, the same is not true for lower value or home based accessories, as any additional policies for items such as televisions often provide poor value for money and offer no cover beyond what is already detailed by home insurance. Not only this, but retailers reasons for offering extended warranties for these types of products are usually unfounded or grossly exaggerated.

The Bottom Line
As consumers, we are often more careful when purchasing a gift than we are when buying something for our own home, especially with regards to product selection and warranty coverage. Despite the urge to protect a gift as much as possible, it should be remembered that the decision to buy an extended warranty is both costly and not guaranteed to provide value for your money. So, consider the value of the product, its function and how troublesome it is to replace. It's these factors that determine what type of warranty it requires. (For more on warranties, check out Warranties That Aren't Worth It And Why.)

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