That extended warranty may turn out to be a waste of cash

With many new goods awaiting their opening tomorrow, take care whether to opt for an extended warranty. It may be wasted money.

Sadly, so often insurance companies encourage retailers to push for the additional sale of a warranty, relying on consumer gullibility and taking an incredible 900m in premiums in the process.

It is common practice to try to sell a warranty with a mobile phone, camera, cooker, television, washing machine and often even a toaster. Think carefully whether:

n Such cover is already within your home contents insurance;

n If the cost of repair could be less than you expect.

It is easy to forget that goods purchased new come with a manufacturer's guarantee, which usually lasts a year. If you decide that a warranty would be a good precaution, such cover does not have to be bought from the same shop or online source as the goods.

There are several companies – including both insurance firms and the manufacturers themselves – that sell extended warranties, sometimes called service contracts or breakdown insurance.

In a recent survey, the consumers' association, Which?, found that 16 per cent of its members had an extended warranty but said that for products such as TVs and washing machines, it can be "expensive and often pointless."

It says that even if a product does break, you may have "a legal right to repair or replacement anyway".

Mobile phone insurance can cost up to 100 a year but loss or damage is frequently already written into a contents of home cover or can be added for far less than through a specialist insurance policy.

This may similarly apply to a computer. If not, shop around for such cover as it is almost certainly going to be cheaper and more comprehensive than one offered by the retailer with the product.

It is also possible to purchase warranties that cover several appliances, such as all the electrical equipment in your kitchen.

Where traders offer extended warranties – whether online, catalogue, directory or store – they must make it clear:

n Such insurance is optional and can be obtained elsewhere;

n Household insurance may be relevant to the purchase;

n Any cancellation and termination rights;

n Financial protection available if the provider of the extended warranty goes out of business;

n Information on financial protection of the warranty;

n If the extended warranty will end in the event a claim is made.

If the warranty costs over 20 (including VAT), in store you can obtain a written price quote and have at least 30 days to decide whether to accept. As a general rule, advertisements from suppliers and in publications must show prices for at least one applicable extended warranty clearly and legibly next to displayed prices of domestic electrical goods.

The European Union has legislated that goods have a minimum two-year guarantee and this has been incorporated into UK law through the existing Sale of Goods Act as amended 1979.

The UK already has far greater protection for consumers than is usually found in EU legislation.

Some of the benefits under the above Act include a six-year statutory limitation period – as opposed to the two years offered by the EU. This means that you can bring a claim for up to six years (five years in Scotland) and can reject goods and claim a refund under certain circumstances.

Check the procedure for making any claim, such as whether you have to pay for any repairs and claim the cost (less any administration fee and/or excess) back.

Always retain the original receipt and any serial or repair documents. Do not rely on statements issued by a bank or credit card provider, which show a debit or credit card entry as the insurer will not accept them as sufficient evidence.

Where an extended warranty runs for over a year, you can:

n Cancel it within 45 days of purchase and secure a full refund where no claim has been made;

n Obtain a pro-rata refund if you wish to cancel the extended warranty after 45 days, even if a claim has been made.

Where domestic electric goods are involved and the extended warranty costs over 20 (including VAT), the supplier must notify these rights in writing no more than 24 days after purchasing.

The Government's advisory arm says that some traders may try to "escape their responsibilities under contracts by using exclusion clauses, for instance by saying that they accept no liability for loss or damage".

However, if such a clause is unfair, it is legally void and cannot be used against you.

If in doubt, ask either a county trading standards office or a citizens' advice bureau. Of course, only a court can decide if a contract is unfair but it will go in your favour if the exclusion is used for the purpose of evading liability for death or personal injury caused by negligence.

In addition, a trader cannot exclude liability for a breach of your statutory rights, such as displaying a sign saying "No refunds given." An attempt to do this is an offence.

Similar statements referring to services, such as "No responsibility for loss or damage to clothing, however caused" on the back of a dry cleaning ticket, are not illegal.

However, such terms cannot be enforced if a court decides they are unfair.

Several extended warranties are sold on a "cashback" basis which means the premium is returned in full if no claim has been made within a fixed time, which is usually five years.

Remember that if no claim is effected and you qualify for this cash return, it is your responsibility to request the premium when the time is due.

Check the terms of such an offer carefully as there is often only a short time frame in which to register your cashback status after signing the warranty.

You are also usually only able to ask for return of the premium for a few weeks immediately after the time period has elapsed.

In addition to keeping a diary note, retain all documents safely. It is sensible to have written postal proof of despatching both your registration and subsequent claim.

Naturally insurers rely on consumer inertia to not register in time and on the likelihood of losing the documents.

If the firm offering the cashback goes out of business, the likelihood of getting your premium returned through the liquidator is slim.

Finally, of course, there are those companies that are so confident of their product that it automatically comes with an extended warranty which is complimentary.

Step forward Panasonic with six years for its vacuum cleaners and Hyundai cars, which give buyers five years unlimited mileage.