No matter what major purchase you make — car, furnace, computer, or dishwasher — you'll probably be offered an extended warranty by the company selling you the product. For “just” $79, you can add an extra year to the existing warranty. Sometimes you can even add three or four years of protection.

These extended warranties can be a good investment in some cases, but they're a bad idea at other times.

When Not to Buy an Extended Warranty

If the product you're purchasing has any of the following characteristics, steer clear of an extended warranty:

• You intend to own the product for only as long as the original warranty is in effect.

• Within a few years, the product will be out of date, and you'll want or need to get a better, more powerful model.

• The purchase price is low enough that you wouldn't be strapped if you had to buy another in a few years.

• Repairing this product is simple and inexpensive.

• The cost of this product is likely to decrease over the next few years.

• The extended warranty costs more than 20 percent of the purchase price.

When to Buy an Extended Warranty

Do get an extended warranty if any of the following is true for you:

• This piece of equipment is critical to your livelihood.

• You know you can't afford to replace the product if it breaks.

• The warranty is a very good deal.

You can set up your own “extended warranty” savings account. If the product you're buying costs $120 and comes with a one-year warranty, put $10 per month into your savings account. When the year is up, you'll have enough money in savings to cover the purchase of a new product, should the old one break.

If the cost of the product tends to go up with time, as is the case with a car, put a little more than the existing cost into your savings account.