When you buy a new appliance, cell phone, or electronic toy, it’s common for the cashier to ask if you’d like to buy a service contract, also known as an extended warranty. While purchasing this kind of extra protection may be recommended for some big-ticket items, it may not make sense for smaller purchases. Here are some ways to determine whether a service plan will really help protect your next purchase.

Know the Lingo of Extended Warranties

Before opting for a service contract, understand the terms you might hear and the differences between them:

• Service Contracts: These extended warranties are offered through retailers for additional product protection for an extra cost.
• Manufacturer’s Warranties: A manufacturer’s warranty is a promise from the manufacturer that the product is free of defects and will perform in a certain way. A manufacturer’s warranty might cover your product for any period of time and will often cover it for 90 days or longer. The cost of a warranty is included in the price of the product.

Read the Fine Print of Your Extended Warranty

When it comes to both warranties and service contracts, there can be exclusions — costs that aren’t covered. Coverage can be denied if a specific repair is excluded from the coverage terms or if the damage happens outside of the covered timeframe. Be sure to understand the level of coverage you are paying for.

“By law, all exclusions must be disclosed to consumers in writing, so review all of the terms carefully,” says Svetlana Gans, staff attorney at the Federal Trade Commission’s Division of Marketing Practices. If a company refuses to honor a valid warranty, you can file a complaint with the Federal Trade Commission.

Gans also recommends looking for duplicative coverage before purchasing an extended warranty. Service plans should augment coverage, but retailers might offer generic plans that don’t take into account what’s offered by specific manufacturer guarantees. Know what you’re getting for free before you agree to pay extra.

Weigh Repair Costs Against Replacement Costs

Determine how much it would cost to repair or replace the product if it breaks versus how much the service contract costs. For instance, if you’re buying a product that costs $100, does it make sense to pay $50 for a service contract that will cover the cost of repairing or replacing the item? The answer may depend on how long the service contract will be in effect and whether you believe the item will break before or after that period expires. It may also depend on whether you plan to use the item for a particular period of time and/or replace it with an upgraded version after a certain period of time.

In some cases, an alternative to purchasing the service contract is to put the money you would have spent into a savings account. That way, the money is available if you need to repair or replace the item in the future.

The best strategy is to know what you’re buying, Gans says. If you research and buy a dependable product from a reputable company, you may not need an extended warranty.

By balancing costs and benefits, you can determine when an extended warranty will add value to your purchase — and when it might be a waste of resources.