Are extended warranties really a scam?

Factual Questions
1

So I went on a bit of a shopping spree today, picking up an ipod nano a paid subscription for a year of creamy ignorance fightin’ goodness. Been lurking for a while since pay to post came in, and I can resist no longer.

Anyways, the Future Shop fellow gives me the pitch for the extended warranty, $39 for 2 years, and I take it. Now, I’ve been reading some of the threads on these things and I have gathered that 1) The store makes a lot of money on them, 2) the salesmen will often pressure you to buy it, and 3) Smart people don’t buy them because they are a scam (I think that’s the general vice).

Now, I have had a few experiences with EWs. A few years back, I had bought on on an old 2x CDRW drive, thinking that the laser could not possibly last for 2 years at the rate which I burn, and well, if it came close, then I will simply increase my usage until it dies. Sure enough the bugger croaks about a year later, and I get a new 8x CDRW(probably worth $100 or so at the time) as a replacement free.

A few years later, I pick up a Sony Clie palm pilot, and again get the EW, judging that since I will be using it heavily on the go, there is a fairly good chance that something will go snap. Sure enough, about 8 month in it croaks, and I get a credit equal to the original price. I use it to pick up a Palm Tungsten E, and another EW. Total invested: about $330. A year later, the AC adapter goes tits up. I continue to use it with a third party adapter until the end of last year, when I decide to try and cash in on the EW. Sure enough, Staples decides that the AC adaptor was un replaceble and gives me a depreciated credit of $250. Meaning that I spent about $80 for the (rough and heavy) use of the Palm Pilot for about a year and a half.

Is this experience typical? While I don’t think I made any windfalls off the EW, It doesn’t seem to be a particularly bad investment. I highly doubt my ipod will withstand my rough usage for 2 years, especially not with that screen and internal battery, and in about a year and a half time I expect a replacement future ipod. Am I missing something here?

2

As they say, YMMV. Most people don’t try to wear out the device and in many cases never get to take advantage of the EW and see it as a waste of money. Some people seem to always use their EW and see it as a bargain (like you). So the same thing can be a complete waste of money for some people or a great baragin for others. I tend to fall into the first group but I think of it as insurance just in case it dies without being dropped or abused.

3

Extended warranties are only suggested by consumer advocates when they insure flimsy high-tech stuff. Laptops in particular.
Your CLIE fits the category.
I’d say the drive you bought… bad investment, but it paid off.
Out of 9 optical drives I’ve owned, 8 lived to end of warranty…

4

Yeah, it is really a case of personal preference. It is insurance, so what you are really buying is peace of mind. Thatis purely subjective. Now, there can be a strictly analytical analysis that saiys that these are priced such that they are very profitable, they are priced beyond the “expected value” for risk neutral analysis. But people are risk averse whichis just a fancy way of saying people prefer to pay for the peace of mind. How much is a personal decision based on your subjective analysis (“feel”) for how much risk you want to take and your own personal expectation of bad outcomes.

5

Extended warranties are offered because the money that they take in is expected to be much more than the money that they pay out.

You are looking at it as a series of isolated cases which is really the wrong way to look at it. Every extended warranty is set up so that the average person comes out a loser. If someone gets a payoff on one they tend to think of that as a smart “investment”.

The right way to think about it is to imagine what would happen if you bought extended warranties on every large purchase. You can be certain that you would lose money over the course of your life. It would be much more cost-effective to accept that some things are going to break and simply paying for them when it happens is a smarter option.

6

I beg to differ. It’s not a case of ‘every large purchase’. For each item you buy, make a personal assessment of how likely you think it is that the item will malfunction or need fixing/replacing, and what you feel about the potential value to you (in both financial and ‘emotional / peace of mind’ terms) of knowing that it’s covered by the EW.

Of course, this will vary a lot with personal experience. For example, when I buy a TV or a digital camera of a piece of computer kit (with the exception named later), I don’t purchase the EW because my personal experience has been that these things don’t go wrong much. Maybe I’ve just been lucky, but there you go. However, I would always recommend the EW for a laptop, because in my experience laptops are very flaky and prone to error / malfunction.

I say judge each case on its merits and don’t feel pressured into joining the ‘always’ or ‘never’ factions. Shell out for the EW as and when you think the benefit is justified.

7

“Shell out for the EW as and when you think the benefit is justified.” Yuk.

Sorry. Posted too quickly. Please read as:

“Shell out for the EW as and when you think the cost is justified.”

8

They could be a called a scam when pitched wrt tried and true technology. But if you’re buying something expensive that’s on the “bleeding edge”, they make a lot of sense. I strongly recommend extended warranties on big screen TVs (especially the ones that cost upwards of $3k). An iPod nano? Hard to say. How much will a new one, of similar performance, cost if yours fails 18 months down the road?

9

Good points, that is pretty much what I figured. Thus, I only buy them for items that I am reasonably sure will not survive the EW period and so far it has worked out OK.

*Reference my first post, I should correct myself and say that I paid $80 for the use of TWO palm pilots over the course of about 2.5 years.

10

I bought a fairly inexpensive PC from Best Buy and got a 4 year EW maybe $40. I never had a problem with the PC for 3 years and some change, but on 1/1/00, it simply died, (strangely enough nothing to do with Y2K), They didn’t carry the CPU I had bought anymore, so they gave me whatever CPU was on sale that week, a Compaq, I believe. I used that one for another three years before I replaced it. :slight_smile:

Yeah, for something that costs more it can be worth it, but maybe I just got lucky.

11

Yes, John Mace and An Arky bring up my other point, that I only bought them on entry level stuff (2x CDRW drive, baseline model Palm, 1GB ipod Nano) that I was reasonably sure the store would not be carrying by the time the original wore out. Thus when it comes time for replacement I will generally get the baseline model of 18 month into the future.

ianzine , I think Shagnasty was putting it from the perspective of the store. If they sold EWs on everything then obviously they win, and that’s what they try to do, while us schmucks are trying to game the system.

So, the obvious question then, is it generally a good idea to try gaming the system?

12

I’ll just throw in: make sure that the coverage you’re getting with the extended warranty matches up with what you expect.

(Stupid zen micro extended warranty that doesn’t kick in until 1 year after purchase, even though the manufacturer’s warranty only covers service for ninety days. :frowning: )

13

I get the EW on small, portable things that I might drop in a toilet. It’s been an excellent strategy so far. Of course, I used to work for Suncoast when it was owned by Best Buy, so I got a HUGE price break on them. Which was most excellent when my TV had to be replaced a few months ago (just within the warranty time!!), but now I probably wouldn’t get an EW on a TV.

14

I used to always get the extended warranties when I shopped at Circuit City. It came in handy twice:

  1. A monitor started to go bad. With store credit a year later, I was able to get a better monitor, a printer, a zip drive, and a 5.1 speaker set for my computer- without having to spend another dime.

  2. My car stereo starting having display problems- as in, it would go completely black. I got a MUCH better version of the stereo the next year in exchange.

However, each one of those experiences actually convinced me to NOT ever buy the EW again. Circuit City, at least, requires that you let them attempt to fix it through their shop three times before they’ll replace it. Each time, of course, takes at least a month- so that was three months I didn’t have a monitor, and three months of driving without a radio. Getting them to honor their part of the EW was painful- both times I had to contact corporate to get them to even talk to me.

Never again. It paid off those two times, but the hassle wasn’t worth it.

15

According to Consumer Reports, extended warantees are good if you have a portable device (like a laptop) or an HDTV (which are still new technology).

But getting it on a TV or appliance is just helping the other people’s profit margin. Why do you think they push so hard for it?

16

The old saying is that one day after the warranty it fails. With a little good filing of paperwork and a steady hand with a screwdriver and you can make anything fail the day before the warranty.

17

I think a lot of it depends on where you purchase the EW. One poster mentioned that Circuit City, would attempt to repair it first, wasting a lot of time in the process. Not to praise them or anything but I work at Compusa currently, and from what I’ve seen they are generally good about not going through any BS when attempting to use your EW. It is basically a store credit for your purchase amount, not that Compusa doesn’t have some other flaws.

18

I was once offered an EW on a set of freeweights. I let the cashier know that, if I managed to wear out 150 lbs of iron, I would be MORE than happy to buy another set.

19

I’ve never had the need for an extended warranty on anything but our cars. (Knock on wood, here.) The few that I have paid for have never been used at all.

I worked at a big box computer store (now defunct) for a while as a cashier, and they had us offer EWs on virtually everything. It amazed me how many people would pay extra for an EW on a mouse! Yes, I have had a few mouses/mice/meese die on me–mostly during the phase when my ADHD son was learning how to use the computer and was convinced you had to BANG the thing on the desktop as hard as possible to get it to work–but since I can get a decent mouse for less than $10, throwing away a broken one seems like a better deal than paying $5 on the off-chance that it will die within a year of the warranty expiring.

That said, I would definitely buy an EW on a laptop, if I were ever to buy a laptop. However, I have never purchased (or needed) one on any of the Palms that I have owned and outgrown.

20

This is really what it comes down to. Fry’s Electronics EW is worded in such a way they really wouldn’t have to replace anything if they didn’t want to. They have an entry that says the item MUST be returned in the original box. Who’s going to store the box and packing from a 42 inch plazma tv for 3-5 years?

If you plan on getting an EW, READ THE FINE PRINT. Fry’s might tell you it covers damage to the unit. It doesn’t. Also, Fry’s might give you a sheet of paper which tells you what the EW covers but the “contract” you sign at checkout has different wording. You don’t get this contract until you pay - it is printed on your receipt. Before you sign make sure the serial numbers on your paperwork match the ones on the product. I know of people who’ve been denied EW coverage because of a checkout persons typo.

(can you tell I worked in retail?)

I almost never buy a EW. The only time I ever did was on a $120, 21 inch referb monitor that only came with a 30 day. I bought a 3 year warranty through a friend who worked at the store (cost about $20). The monitor died about a year later. It took 2 months for the store to decide it was not only merely dead, but really most sincerely dead. I received another referb monitor of the same size but different make.

$140 for the monitor and I’m on 3-4 years now. That was a pretty good deal.

I didn’t buy a warranty on my two 19 inch monitors and they lasted about 6 years each. I would have lost money on those. My Clie is still running strong after 4 years. My CRT televisions and DVD players are WELL past their expiration dates.

My daughter didn’t get a EW on her Creative Zen. Less than 6 months later it is sitting on my workbench with a dead control pad. Of course in this case an EW wouldn’t have mattered because the EW didn’t cover damage.

Only you can decide the value of these things. Compare the cost of the product, the expected expiration date of the product, useful life of the product and amount of coverage and cost of the EW.

Of course if you think you’re going to kill the product it might be worth the extra $20-40 bucks.