This may get moved over to IMHO soon, but I was wondering whether it normally pays off to buy one of those extended warranties for modern electronic devices. I know the answer is probably “it depends”, but I bet someone has done a study on this and has some common sense advice.
Start Side Note: I would hope that modern electronics are becoming more reliable over time… but that might just be wishful thinking. End Side Note:
Here’s the scenario… I walk into my neighborhood electronics Super Store and decide to by a $99 flat-bed scanner. As I’m going to pay for it the checkout clerk asks if I want the optional 2 year warranty for only $14.99. The unit already comes with a 1 year warranty. My gut tells me that in this day and age a piece of equipment such as this that is maintained properly should last more than 2 years so buying the warranty is a waste. But on the other hand they wouldn’t offer these things if someone didn’t buy them.
So what’s the SD on extended warranties for electronics and computers etc?
Having been a Radio Shack store manager, I can tell you with complete certainty that extended warranties, service plans or whatever they decide to call them are a waste of money. Retail companies sell them to make money. Most manufacturing defects are shaken out within the normal warranty period, and while you may encounter the odd problem here and there after the normal warranty period, it is generally uncommon enough that you’re better off without it. On average, you can expect to recoup some percentage of the cost of the extended warranty, but this will be much less (again, on average) than the total cost.
Anything a merchant sells makes money for the merchant. It is possible that the purchase of the extended warranty can be justified to provide peace of mind. For example, if some expensive repair is needed you have paid for it in advance and won’t have to come up with a lot of money in a hurry. But from a strictly economic point of view you are paying extra for that peace of mind.
These two things aren’t mutually exclusive. I’m sure someone will be along with some real numbers, but I remember seeing somewhere the margin of profit on extended warranties and it’s basically all money into their pockets.
I figure the cost for the rare time when something does break unexplainably at the end of a three year extended warranty is off-set by the hundreds of dollars I don’t spend on getting that extended warranty for everything I buy in the first place.
The one exception might be on portable electronic devices that you might drop & break, like PDA’s, laptop compters, etc. But make sure that the warranty does not exclude such ‘user-accident’ damage. Actually look in the warranty; don’t count on the sales person; they will always say “sure, it covers that”.
In my experience, they always do exclude such damage, at least in writing. Sometimes, you can get away with having user-caused damage repaired, if it’s not too obvious, but it’s not something I’d count on. You’re better off just being a little extra careful with your dropable portable devices
We got an extended warranty on a Toshiba laptop, and it was well worth it – two major hardware problems (broken USB port and broken keyboard) were fixed for free.
However, the computer we bought was a floor model. It had been running nonstop for a couple of years, with people coming by and banging on the keyboard. It probably was subject to a considerable amount of abuse.
Consumer Reports says it is unnecessary, with three exceptions: treadmills/eliptical trainers, laptops (especially if purchased from the manufacturer and it covers damage from falls), and plasma TV.
Otherwise, it’s a quick way to make pure profit. It is highly unusual for most other electronics to fail, and in some cases, I’ve seen extended warantees that are more expensive then buying a brand new item as a replacement (check out the notes GE sends you on their TV).
Note that whenever you buy any electronics, they push an extended warranty. If you ask for any hard data on failure rate, you get a shrug and “You never know.” If they weren’t making big money on it, they wouldn’t be pushing it on every sale.
I usually say to the salesperson, “Are you saying there is a strong chance this will break down after the warranty period? Well, if it’s built that crappy, I don’t want it.” Then I start walking away. You’d be surprised how that makes him change his tune.
Also consider how much the warranty costs compared to the device, how much risk you’re willing to take, and how quickly the devices improve and drop in price. I bought a warranty for my $1200 laptop, because $200 to make sure it’s in good order for 3 years seems like a good deal, and I really don’t want to have to buy a new one soon. When I went in to buy a DVD player and they offered me a $15 2-year warranty on my $60 player, I laughed in their faces. In 2 years, I’ll be able to buy a new DVD player for $15.
This is not always true. For example, we sold computers which were sometimes discontinued. In order to move these older units, the company would lower price and sell them on clearance at a loss. We were supposed to make up for this loss by selling addo-ons like extended warranties, accessory cables, ink carts and the like. But, if the customer refused to buy any of these extras, we’d take a hit on the sale.
One thing that hasn’t been mentioned is that the extended warranty offered by retail stores is often inferior to the manufacturer’s warranty, which is already included in the price that you pay.
For example, if you buy this chair from OfficeMax, you can purchase their extended warranty for $29.95 for 3 years. This, however, only covers the casters (wheels) and upholstery, and it doesn’t even come into force until after the manufacturer’s warranty expires.
But how long does the manufacturer’s warranty last on that chair?
Ten years for the seating controls, five years for upholstery, five years for the casters, and a lifetime warranty for the pneumatic cylinder. If your chair breaks and it’s still covered by the manufacturer’s warranty, the retail merchant will correctly note that their warranty is not yet in force and they are not involved. I consider it a safe bet that they rarely, if ever, have to fulfill their end of the bargain on an extended warranty.
This is not to single out that specific merchant, but rather to provide an example of how extended warranties offered by retail merchants can work.
Extended warranties are much like auto insurance. Nice to have when you need it, but a waste of money if you never use it.
Of course companies make money on them. They take in much, much more money for warranties sold than they’ll ever pay out in repairs. Last time I checked, insurance companies were in it for the money, not because they were good samaritans.
I used to work for big old BBY. Did people use their extended warranties? Yes, on everything. All day long. People got new computers quite frequently because theirs was 2 years old and had more than 3 repairs done on it. Repairs are expensive and almost always outweigh the cost of the extended warranty.
However… We did sell more $$$ worth of extended warranties than were ever used.
Having worked there for over 10 years I have a gut feel for what I would personally buy an extended warranty on. Car radio that goes through the seasons in the midwest where the temp in your car goes from -14 to +100? Absolutely. Refridgerator, oven, home stereo speakers, televisions, dvd player? Never. Computer, laptop, camcorder (that travels a lot)? Yes. Car speakers, vacuum cleaner, gamecube, monitor? Never. Gameboy(for an 8 year old), printer (heavy usage only), cellphone (for a contractor only)? Yes.
Congrats on the extended warranty working out for you, but it would be a mistake to judge the value of anything based on one person’s experience. (Or even a dozen people.) It would be akin to a lottery winner saying, “Yep, the lottery is something everyone should play. Heck, it worked for me!”
For the most part, extended warranties are a rip-off, as it is usually much cheaper to be self-insured. This goes for electronics, appliances, vehicles, and anything else you can think of. Now having said that, some consumer experts agree that there might be a few exceptions, though the jury is still out. These include:
Laptop PCs
Plasma TVs
Car warranties sold by the manufacturer of the vehicle. (Never purchase a third-party vehicle warranty.)
FYI, here are Clark Howard’s tips on extended warranties.
Finally, I want to reiterate the point that, just because some people have found extended warranties to be useful, it does not necessarily mean they’re a good deal. Because when you looks at the hard numbers (warranty cost vs. odds of needing repair vs. worth of item over time) you’ll conclude an extended warranty is almost always a rip off…
£130 for a ‘three year’ (actually two extra years over the standard one) warranty on an inkjet printer that cost £115
That’s right; they really wanted me to pay more than the item actually cost to buy! Why wouldn’t I just chuck it in the bin and buy a brand new replacement (which would probably be cheaper than the original anyway)?
