Should You Buy An Extended Warranty?

Parade magazine gives some good thoughts on whether or not you should get an extended warranty. Here are the points they say to consider when deciding:

• You may already be covered
• It doesn’t have to be today
• Repair may cost less
• Products get outdated
• Not all repairs are covered
• Other services may be offered
• Prices vary

They also give a couple other tips that I found interesting:

In general, the warranty shouldn’t cost more than 20% of the price of the product.

If you’re not happy with the terms you’re offered, check an online warranty store.

Finally, they list some product categories that people should and should not buy the warranties for. Here are the "shoulds":

Rear-projection televisions. They’ve been slightly more trouble-prone than the average set due to premature bulb failure.

Computers. Although you may not need to get your desktop repaired, tech support often comes with the extended coverage. If you’re insuring a laptop, ask whether you’ll be covered for accidental damage (which is often extra).

And here are the "should nots":

Major appliances. They rarely break down during the life of the extended warranty.

Digital cameras. Only 8% of those who bought a digital camera in the past three years have had to get it repaired or had a serious problem, according to a Consumer Reports survey.

If I was to add one to the list, I'd suggest you always buy one for exercise equipment. ;-)

Comments

[Mark]

I would NEVER buy extended warranties, whatever the situation. They are a total waste of money. I have a rear-projection TV that I bought in 2005, and a spare light bulb that cost $200 should it go out. I will likely upgrade to 50-inch plasma before I get the full use of the replacement bulb. Even the price of flat screen TV's have come down such that it would be better just to upgrade after 3-4 years. You can spend more on cable and internet in one year than you do on a plasma TV.

The same thing applies for major appliances and automobiles. The fact is that most of them are disposable after 6-8 years anyway, and most extended warranties only cover and extra 1-2 years beyond the manufacturer's warranty. If nothing happens within the original warranty periods, chances are that if you take real good care of your stuff, you won't need to replace it anytime soon. By that time you'll be wanting the latest thing anyway, regardless of the condition of your existing goods.

[Angeline]

I generally don't think extended warranties are worth the money you pay for them, especially with tech stuff because of the rate at which new things come on the market.

This isn't an extended warranty, but maybe along the same lines: I recently found out that we were paying for two types of insurance on both our cell phones. I had thought about cancelling the insurance...but I felt the circumstances were justified (lots of business travel and he is prone to misplacing things) and the insurance happened to come in handy last month (cell phone got stolen while he was on a business trip). But they never told me that I could sign up for the insurance separately and not in the bundled package. So I downgraded the insurance to cover loss/damage, and I removed the extra "repair" insurance. It seemed redundant, after all. I'm not talking about lots of money (less than $100 over the course of a year) but that's still dollars out of my pocket for something we don't need since it's already covered in the loss/damage insurance. I was just miffed that they didn't tell me that in the beginning, and they even gave me grief about it since you're supposed to do that type of thing within the first 30 days (going on 2 or 3 months with service now). I was transferred to the Insurance Department, and the number didn't even work! Of course I called right back and spoke to someone else who was more than helpful and made the change for me.

Back to extended warranties, my parents had a big flat screen TV break on them about a month after the regular warranty expired - as luck would have it - which was one year (but they did buy the extended warranty, so they were okay). They called the technician to come and fix it. He made several trips to their house and couldn't fix the thing, so they had to call in for a replacement. After all was said and done, they had lots of frustration and were out of a TV for almost 8 months, getting the run-around from the company and getting sent a TV that was also broken. In the end they managed to eek a newer, bigger model out of the company for all the troubles. I don't know how much new flat screen TVs cost today, but I'm sure it's not cheap.

[Howie]

I never buy an extended warranty. When I make big purchases, especially electronics, I use my credit card that has the automatic extended warranty through MasterCard.

[Amy]

The only warranty I would consider buying would be for a computer. I swear the day after my Dell laptop warranty ran out, the backspace button disconnected from the keyboard. Now I just make do without it and use delete instead, but it's annoying!! (but not quite annoying enough to force me to pay for a repair).

[Jake]

The first principle of insurance is that insurance companies make a profit -- you should self-insure any risks you can afford to self-insure. This includes repairing your luxury TV or laptop. If you can afford the expensive item, you can afford the occassional repair bill when one of your items needs a fix.

I have health insurance, term life insurance, and once I purchase a home I will have homeowner's insurance. I have never insured an appliance or consumer electronic purchase, never purchased "trip insurance" for a vaction, etc. Just like in investments, you get paid to take risk, and if you want others to shoulder the risk for you, you'll have to pay them for that. Over the long run, the more risk you are willing and able to take for yourself, the more wealth you will be able to accumulate

[Zook]

My favorite story about extended warranties is the famous Best Buy insurance pitch.

I bought a set of tweeters for a friend's car probably back in 2000. They cost $19. This didn't stop the salesman from asking if I wanted to "extend" the year warranty from the manufacturer for $9.95 for TWO years of protection. WOW.

And they wouldn't be asking if folks were buying it.

Business 101 (or whatever the class was) in my freshman year in college discussed how warranties are set.

Take Widget "A". It's been tested and 95% of the widgets under a good amount of wear and tear last 3-years without needing any work. At 5-years, 90% work perfect.

Now if a company says product "A" has a two year warranty and we can extend it for $100 up to 3-years, they have 5% that they know will need repair. Of course folks lose product "A", sell it or maybe try to repair it themselves or even lose the receipt. So this company probably collects from a solid amount of people this $100 upfront and in three years they may have 1-2% being returned for a fix.

The numbers are skewed in the company and retailers favor.

[Foobarista]

Extended warranties are a scam, particularly for electronics. Even if they completely replace the product, it's worth far less than the one you paid for to begin with - and often worth less than the initial price of the warranty itself. And anyone with a decently large emergency fund shouldn't need this sort of "nickel-and-dime" sort of insurance anyway.

[SM]

Amy -

I don't know if you'll see this or not, but there are free software programs available that will let you remap your keyboard. After a quick search I came across KeyTweak (search for it via google) that should work perfectly and not require any repairs.

[Rev]

As an owner of a 65" rear projection tv i vote against extended warranties. replacement bulbs are only a couple hundred and easy to do on your own. also they are not covered by many warranties anyway. just buy it on an amex or good mastercard and get the second year extended warranty.

[Illiya]

FYI -- If you buy the purchase with AMEX in full, you do get some extra warranty coverage.

[Riley]

After working for an electronics retailer for several years, I think everyone should know the difference between an "extended warranty" and a service plan. Extended warranties usually cover most manufacturers defects, a service plan is more extensive. Big corporations such as a Best Buy are usually a pretty hassel free experience. You call, they come and fix or replace the television. In today's economy, they're not going to make a huge deal about a faulty TV and risk a lifetime of business for a few hundred dollars. I'm not sure about most of you, but I certainly don't have the money to replace a television every few years. Yes, manufacturers warranties are still around, but the customer service level is usually inadequate for most repairs. Oh and DLP or projection TV's are a dead technology, so I'm talking about LCD or plasma Tv's