We often are asked to define the difference between an extended warranty and protection plan. Are they the same or are they not?
Extended warranties are traditionally known by the general population as an extension of the manufacturer warranty. If coverage is purchased on a particular item, the manufacturer would be responsible for their warranty period and the extended warranty would cover the product after the manufacturer warranty expired.
As plans evolved with different features such as accidental damage coverage and loss and theft the term extended warranty no longer correctly applies. In these cases, accidental coverage would start from the date of purchase, not after the manufacturer warranty expired so the extended terminology would not apply.
In addition, extended warranties often have a negative stigma associated with them and sound like a tired money grab offer during the sales process. We all know the pitch for the warranty is coming, but calling it a protection plan sounds more appealing when we think about peace of mind. As people, “protecting” something sounds a lot more attractive then extending something.
As a result, the term Protection Plan is now used to provide a more value sounding spin to a product that has indeed changed and to avoid misleading the consumer.
With most purchases, as the value of the item rises, the cost the protection plan declines relative to the purchase price. For example, a product selling at $100 might have a protection plan priced at $18 or 18% of its value. For a product that costs $1,000, an equivalent plan might cost $100 or 10% of the purchase price. Buying a protection plan becomes even more compelling when you consider the cost of buying another $1,000 product.
Regardless of the name, a protection plan offers real value to the purchaser often times saving them the hassle of an expensive repair. The real question you should ask is, “if this product breaks, can I afford to fix it?”