You Probably Don't Need an Extended Warranty

Is everyone offering and extended warranty on everything nowadays? In the past couple of weeks I've been offered one on both a space heater ($9.99 warranty for a $70 purchase) and an office chair (not sure what the amount was, but the chair was $50, so I'm sure it was a rip off.)

Consumer Reports says that this holiday season, shoppers are expected to spend over a billion dollars on extended warranties for laptops, flat-screen TVs, other electronics, and appliances. They also claim that almost all of it will be money down the drain.

Their summary of the situation:

For the consumer, extended warranties are notoriously bad deals because:

• Some repairs are covered by the standard manufacturer warranty that comes with the product.
• Products seldom break within the extended-warranty window—after the standard warranty has expired but within the typical two to three years of purchase—our data show.
• When electronics and appliances do break, the repairs, on average, cost about the same as an extended warranty.

In general, we have found extended warranties to be a bad deal for the customer and have long advised against them. The most cautious consumers might want to consider an extended warranty for a repair-prone brand, provided that the warranty is both inexpensive and comprehensive and the cost of repairs tends to be high.

They also offer this advice for those that just HAVE to have an extended warranty:

• First check your credit card
• See what other retailers offer
• Beware of hidden "gotchas"

And finally, they offer this advice:

Don't pay more than 20 percent of the purchase price of the product for one. Always try to negotiate a better price.

A few thoughts from me:

1. I can't remember the last time I purchased an extended warranty. It was a loooooong time ago, that's for sure. Wait, now that I think of it, it was probably with my nightmare elliptical (thank goodness I bought one in that case -- it really saved my bacon. I think I went for it because it was either free or a greatly reduced price.)

2. If you use Consumer Reports and buy quality items based on quality rankings (yes, they'll cost a bit more in general but ultimately represent a better "value" IMO), it's likely that you'll never use a warranty.

3. Some people have used the non-rewards perks of their credit cards to double as warranties.

4. In a contrary viewpoint, SmartMoney says there are times when it's appropriate to buy an extended warranty.

5. Good example of a company adding on to a warranty is Costco. They doubled our warranty when we bought a TV from them.

6. That 20% rule is interesting. Never heard that one before.

7. The one warranty that really gets people the most -- and I hear from people who I think are fairly smart money managers that they've bought one too -- is the car extended warranty. Why do people buy those?

What's your take on extended warranties? Good, bad, or mixed?

Comments

[Ken]

Laptops. That's a good place to get a warranty. Unless its a super cheap entry level one.

Since the main components in laptops that break are proprietary, you can only get them from manufacturer.

Both on my laptop and my wifes, the repairs done in warranty have been worth it.

[jeffinwesternwa]

NOTHING, unless you are really stretchin budget by buying too much whatecer it is: car, computer, TV, etc., check your extened warranty that's typical anyway when using your platinum VISA/Mastercard, it's free!

[Apex]

20%? I say that is WAY too high.

If you think about it that means in order for it to be worth it for you 1 in every 5 items you buy would have to need not just repair but complete replacement within the warranty period. If I was continually buying that kind of crap, I would just take a bottle of pills and be done with it.

[Dan Cuprill]

Forget warranties, unless it's on a very expensive item. I've seen them offered on $100 printers. It's like any kind of insurance. If you can afford to replace it, don't insure it.

[David]

I almost never get warranties for anything except my laptop. I got an extended 3 year warranty for my Macbook and it's been a lifesaver. Just last month (2 years, 9 months into the warranty) I had to replace my internal hard drive. They replaced my hard drive and also gave me a complimentary upgrade on my operating system. This was the third time I brought my laptop in for work and everything was covered based on the warranty. Good stuff. That said, for other appliances I don't bother with warranties.

You might want to check out Square Trade warranties (www.squaretrade.com). They offer warranties for up to 70% less than retail store warranties.

[Old Limey]

I agree - extended warranties are only a good deal for the seller. I have owned 3 laptops, the last two have been from Dell's factory outlet store and I have had been very satisfied and had zero problems.
Even when you buy a used car, if it's from a factory dealership it should come with a warranty of some kind that is in most cases all you need - anything else is just a high profit item for the seller.

[Rajs]

Most of the time I don't get warranties unless it is more than $500. I bought it on Whirlpool dryer and washer for three years. Third year got hit by lightining (thats what happens when you live in Florida). Got it repaired twice. Acutally renewed the warranty again for another three years. If it breaks again, they replace with new!

[Stacie]

I bought the $10 warranty on a $90 personal DVD player, knowing that my kids would be the primary users. The chances of them dropping it was worth it to me.

After 2 years of ownership, that's exactly what happened. Nothing seems to be wrong, but the player didn't recognize that a DVD was in. So we took it back to Sears and got a new one for free, and paid for another warranty :)

[LotharBot]

I don't have comprehensive insurance to protect against the loss of the paid-off car that I can replace for $5,000. I can pull 5 grand out of the emergency fund, and at a cost of a hundred bucks a month for the extra insurance, I only have to go an average of 50 months (~4 years) between destroying cars to break even. I have insurance to protect against totaling someone's jaguar and putting 3 people in the emergency room, though, because I can't afford a half million dollar judgment, and even if I could it'd take me a few centuries to "come out ahead" by not having insurance. (Also, it's legally required.)

I make a similar calculation for consumer electronics, appliances, etc. If I buy $2000 worth, it probably costs $200-$500 to get "extended warranties" on everything. Given my own personal track record, I'm not going to break enough stuff within 3 or even 10 years to make the low-end number worthwhile, let alone the high. It's cheaper for me to pay full replacement cost for the one thing that breaks than to buy extra protection for everything.

Of course, as others have said, this calculation can change. If kids are using something, the chance of breakage goes way up. With a heavily-used laptop with a decent chance of failures and a high cost to replace, it may be worth paying a little extra for coverage. But in most cases, the extra cost isn't worth it; I'll do better putting 10 bucks in a piggy bank whenever I buy that sort of item and then drawing out from the piggy bank if something fails.

[Sean "Uncommon" Payne]

People buy warranties not based on actuarial tables for the new LCD TV they're purchasing, but based on their how bad they'd feel if the thing broke and they couldn't afford to replace it.

Warranties are for people who are math-impaired, because The House Always Wins in the long run.

[Al Howard]

Recently purchased a well used, but clean 2004 small suv. had 90K miles, but in real good shape. Bought it from local dealer, and purchases a 36 mo, 36k mi warantee. Basically bumper to bumper. With an autmatic FWD to all wheel drive set up, figured good investment at that age.Added about 20% to price, which brought it just about up to "book".

[Don@moneyreasons.com]

I use to believe that extended warranties weren't worth it, but I've recently changed my mind because of 2 Cases:

1.) a guy at work bought a HD TV a few year ago and it went bad. With his extened warranty he purchased, he was able to get a free newer model TV since they no longer made the model that he owned.

2.) One blogger had a problem with a laptop that she bought, and they pretty much replaced her laptop (almost free of charge).

So, I now think if the extended warranty is resonable prices, and the electronical item is over $1,000 in cost, I would now get one.

[cmadler]

I've bought one extended warranty, and would do so again under the same circumstances: when I got a car loan from my credit union, they offered a lower interest rate if you bought the extended warranty, such that the net cost was the same.

[Mary W]

I agree in principle and usually decline the extended warranties as a waste of money but there are 3 items I've needed extended warranties on. 1. We bought a newer model projection TV many years back when they were still new at Best Buy. We bought the floor model for a reduced price and were told with the extended warranty it would be replaced after 3 service calls if a lemon. Since it was the floor model and we saved ourselves a few hundred, the extended warranty was worth it. Three service calls later, it was replaced for a brand new TV. This one also had problems 2x over the years so we renew the extended warranty each year. 2. We bought the Kenmore Neptune washer back when it was the new cadillac of washers. It came with a VHS tape, so I am dating the washer here. Over the years it has needed parts replaced and I've been happy with the warranty. 3. My mother gave us her old treadmill. Almost immediately, the belt broke. I was able to call Sears and "buy" an extended warranty despite the fact the product had been purchased there years before. Perhaps the belt would have been cheaper but not when you factor in the cost of the service call to diagnose what the problem was and to get it oiled as well. After replacing the belt twice, we have let the extended warranty lapse. It would make more sense to buy a new state of the art machine if this one breaks again.
Also, the Apple 3-year from time of sale service agreements can't be beat. You can call the support line at any time and they will walk you through fixing a problem be it hardware or software related. The only problem is that you must do this for each item, which I think is a ripoff. If you one an iPhone, iPod, Apple TV, and Mac, as I do, then each service agreement must be individually paid for and is tied to that products serial number. That gets pricey, although there are some fine lines where they will talk to you when an interface between products is a problem as long as a product is registered.

[Crystal]

If we use our Discover card to purchase an item (which we use all the time anyway), it doubles the manufacturer warranty up to an additonal year. We also have not bought an item that needed repairs in the first 5 years yet. In short, we definitely never buy extended warranties.

In the last 8 years, our major purchases have been 2 cars, 2 laptops, a refrigerator, a stove/oven combo, a dishwasher, a clothes washer, a clothes dryer, 2 microwaves, a digital camera, 2 GPS systems, and a 47" LCD TV.

The youngest things are the TV and the digital camera (each about 2 years old) and they are still covered with the Discover card extended warranty. None of the above items has ever needed to be fixed or replaced except for a serpentine belt and O2 sensor on my car which would have been beyond its 5 year warranty anyway. We thought the first laptop was on its last legs, but then we just blew some air through it. That cleaned out some dog hair, and it has been fine.

Based on the requested amounts for the extended warranties for the above items, we have saved about $3400 ($900 if you don't count the cars)...that is more than enough to completely replace any of the items other than a car.

My husband's car still has 6 years and 50,000 miles left of a free power train warranty and we have an account set aside for a new car downpayment anyway.

Yeah, I'm not a fan of extended warranties or the fact they seem to be offered for stuff that would make no sense! A $40 extended warranty for a $120 digital camera?! Seriously?

Anyway, thanks for letting me vent.

[PDubbs]

Would the companies offer the extended warranty if they didn't make money (on average)? Of course not. That right there tells you that (on average) you lose money by getting the extended warranty.

Now, if you're buying something that you can't afford to repair/replace (house, car, someone else's expensive car, etc) then yes, you probably have to get insurance/the extended warranty even though it's a bad deal.

[MC]

I agree--the extended warranty's must be a ripoff otherwise the companies wouldn't offer them.

I figure that can afford to replace any item if it breaks (except maybe my car, but it already comes with a warranty and I have to pay for insurance on it anyway). I try to buy quality so the items I buy probably won't break. So buying any kind of warranty is just money wasted most of the time.

Here's some data to substantiate that claim:

I've purchased in the past decade at least three computers, four printers, three digital cameras, a 35 mm camera, and a video camera, multiple phones, an ipod, three ipod docks, a bookcase stereo, a boombox, two regular TVs and a large screen HDTV, an up-converting DVD/video player, two regular DVD players, 2 furnaces, 1 central air unit, two programmable thermostats, a ceramic space heater, a hot water heater, a regular fridge, a wine fridge, a dishwasher, 2 microwaves, 2 ranges, 2 sink disposals, 2 automobiles, a lawnmower, and a garage door opener. I've also purchased at least 7 Dell laptops for my work group. And oh, I have a water softener and a full-size washer and dryer that were in my home when I bought it in 1996--all still work fine even though I wash probably a dozen loads of laundry every week.

*None* of these things have ever broken or needed repair (at least for the computers and printers, not before the item needed replacing anyway ie about 5 yrs). None! And I have kids who are not always careful especially with electronics. All I ever do is the recommended maintenance where appropriate (ie the furnace, AC, and cars), that's it.

[WeatherDave]

Extended warranties (EW) are generally a bad idea, however not always. We needed a new dryer and washer, so we followed Consumer Reports best buys on both, and the company was in the top three best for reliability. My wife is happier with the EW, and we got a decent deal on a 3 year EW. Since we bought the two machines we've had the repair people out 4-5 times, where they replaced three controller boards (Washer and dryer) and the primary motor (dryer), not to mention a host of other things.

So talk about suckers bets all you want, in this money smart household we saved big bucks by buying that EW. The combined cost of those control boards and motor (plus the visit costs) more than exceeded the cost of that EW several times over. Add in that a lot of mfg's are only offering 1 year warranties ("simplified warranties" they call it) and in this household, we will take our chances with a good EW.

[johnny petters]

Apple touts the fact that it has a solid advantage by controlling both the hardware and software. Although this is true, what they don't control is the content itself. The iTunes Store is their attempt to at least control the distribution of content. The iPad is their attempt at doing print media better than old tech. Now they want to take on television. As with music, their best bet is to deliver TV 'better' than the old media. Their best bet is to offer only what the user wants, in an easy way and totally portable.