A friend is buying a new television (Samsung LN-T4069F) and intends on purchasing an extended warrantee on it for an additional $200. It’s always been my understanding that buying an extended warrantee is a bad idea. Should he or shouldn’t he? What’s your opinion?
It’s insurance, and like any insurance, depends on your tolerance for risk. But consider that the TV is covered for the first 90 days/6 months/year of its life and that it has essentially no moving parts. So if anything is going to go wrong, it’s likely that it will go wrong in the first few months of ownership, and that it will otherwise function without problem for years.
This is assuming a quality manufacturer and no ticking timebombs – faulty capacitors in the power supply or other weirdnesses.
$200.00 is a pretty hefty fraction of the purchase price of a new TV – I’m guessing that’s between 10% and 15% of the total.
If it were a laptop that has moving parts and is subject to a lot of moving around and shocks, I’d maybe think differently, but for a TV, it’s probably not worth it.
Two other things to consider:
One or more of his credit cards may already offer some level of purchase protection or warranty extension at no additional charge.
Who is the extended warranty from? The manufacturer, the vendor or some third party? Read the fine print carefully - as an example, if you buy that particular TV from Amazon, they’ll offer a “4-year” warranty plan for $230, but it’s really a 3-year extension to the manufacturer’s warranty, and if anything goes wrong in the first year, they’ll send you back to the manufacturer for support. Also double-check where the coverage is valid - Amazon’s warranty extension is not valid in Maine, just as one odd example.
Also, is the coverage in-home, do you have to take the TV into a service center, or worse, do you have to ship the beast somewhere? That’s not a major concern for an iPod or a microwave oven, but it’s going to be really difficult for a 40" TV.
If this item is a piece of crap that’ll most likely break down, then you will need the insurance. However, if it is a piece of crap, you’re better off not buying the crap in the first place. This type of insurance is a huge money maker for the seller.
Extended warranties are there to improve the bottom line of the person selling the set. Why do you think they always push them so hard? It’s $200 that they get and don’t have to provide service. If the set were $200 more, would your friend buy it?
Here’s this"
Read that lsentence in italics (mine) again and see why it’s so popular with retailers.
There are some cases where it makes sense. Some laptop computer warranties include free repairs if you need to replace the screen or keyboard, and those certainly can pay for themselves. But unless the item is in danger of being dropped, don’t bother.
I seem to remember that Consumer Reports recommended buying an extended warranty on only a few types of products, including notebook computers and flat-screen televisions. Does anyone have access to back issues or the website to confirm or deny this?
Tell him to take the $200 bucks and put it aside. If the TV breaks, he can use the money to go get it fixed.
I remember buying a Playstation 2 for Ivylad for Father’s Day (this was a few years ago, obviously.) The cashier was really pushing the extended warranty, trying to scare me with all the things that could go wrong.
“Wow,” sez I. “I didn’t know it was such a fragile piece of equipment. Maybe I better not buy it after all.”
Then I smiled at her.
She began muttering under her breath and rang me up with no further pitch. The PS2 is still working fine.
Something else to consider is whether the extended warrantee policy covers more or different failures. e.g. if a nearby lightning strike fries the TV on the 2nd day you own it the original warantee will do nothing since that’s not a covered cause of failure. Will the extended warrantee cover it? Maybe, maybe not. Only reading the fine print on the policy itself will tell you for sure.
Also consider that you may have homeowner coverage for the lightning strike scenario. But that won’t pay to replace a TV that just fails on its own.
Bottom line: your risk tolerance is key. If you can’t stand to have to buy a second one, you either need to insure the first one, or buy something cheaper which you can stand to replace.
The fact that extended warantees are high-to-ripoff priced is really immaterial. You’re choosing between paying, say, $200 for a policy that you have a 1 in 100 chance of using, or paying $2000 for a new TV if it fails after the inital warantee period. If you can’t stand to pay another 2000, you have to accept paying the 200. Even though the warantee co would still make money (and you’d be a lot happier) if the policy was only $50.
Certainly the most efficient thing to do is self-insure. But not everybody has the spare cash to do the most efficient thing. Like subprime lending, the less you can afford it, the more the ripoff artists circle around, and the more often circumstances force you to buy from them.
So far I’ve been talking as if having that particualr TV was a necessity, where if it broke then not replacing it one-for-one would not be an option. That’s true for broken arms & mostly true for cars, but much less so for TVs.
If the thing fails out of warrantee, you CAN in fact throw it away and use a 10 year old garage sale special.
I never carry collision and comprehensive on cars. If I wreck it or it gets stolen I’ll just eat the loss & buy another (probably crappier) car. But that’s because I have the free cash / available credit to buy another adequate car on a moment’s notice. About halfway through my driving life I’m well ahead doing it this way … so far.
Everything you need to know about insurance has been summed up by Dirty Harry:
Do ya feel lucky? … Well do ya?
This is exactly the logic which made me realize they probably weren’t worth it, even before Consumer Reports came to the same conclusion. Way back when, IIRC, when Sears was one of the first places to offer this sort of thing, they were an extremely nominal charge (I remember something like $10 on a $400 microwave) and half the time the cashier would forget to mention it. But then everybody had them, the prices went crazy, and they pushed them like Florida real estate. That’s when I said, “This ain’t making sense.”
Ten years ago a friend who sold TV’s at Circuit City said he got 4 bucks commish on the sale, but 12 bucks commish on the warranty.
I’d give it a big “NO”.
Think of all the TVs you’ve owned in your life and think of how many of them have broke. If they did they were either defective out of the box and the problem surfaced early or the tv got old and worn out.
The $200 4-year warranty is really only 3 years since Samsung will cover it for the first year.
It would be like buying a warranty for a new car that covered you between 10,000 to 40,000 miles. If no problems surfaced over the first 10K miles it’s probably going to be trouble free up till 40K.
And while your at it tell your friend to opt for the better Sony Bravia 40" 1080p for the same or less cost (KDL40V2500 or 3000). Highly rated trouble free sets.
Did you ever see the Simpson’s where Homer has the crayon removed from his brain, and it makes him smart?
He asks the doctor to put it back in, and as the doctor is shoving it back in, Homer is getting progressively dumber.
First, he says something like, “the square of the hypotenuse is equal to the sum of the sqaures of the other sides of a right triangle.”
*
::doctor shoves crayon deeper::*
Homer goes, “DE-FENSE! UH UH! DE-DEFENSE! UH UH”
::doctor shoves crayon deeper::
Homer says, “oh, the extended warranty sounds great.”
That’s all you need to know. I bet the actual value of that $200 warranty is about $10.
The problem with an extended warranty (or any warranty, really) is the repair process. I buy Apple’s extended warrantly on their laptops only because I know that the round trip fix time is about a week. Any longer than that, and the lost time is worth more to me than the fix. I don’t buy any other extended warranties.
A few years ago, my DVD player broke, and it was within the original warranty. I got it fixed, but it had to be mailed back to the factory to fix. At the time, I was broke and the DVD player was a $200 device I couldn’t afford to replace. But it still took over a month for the warranty to do its thing.
Even aside from the fact that the expected value of the warranty is bad, In the event that the thing breaks, are you willing to be without it for a month or more while it gets sent back to the factory? I doubt it.
I just bought a Samsung LNT-4661 and it’s great. Good choice!
Here’s how I see it. I use the TV every day, and it’s probably our primary form of entertainment. We bought our last living room TV nine years ago. Over the presumed lifetime of this TV, $200 isn’t very much. I more or less moved the cost question out of my mind when I went shopping. (All of the local stores had the TV at around the same price, maybe $50 difference.) I purchased it at the store that gave me a 10% discount for being a member of AAA.
If the TV goes tits up, I can’t do a damn thing to fix it. So the additional coverage seems worth it to me. I agree it makes sense to read the agreement carefully before you buy it, but if it extends the warranty coverage offered by the manufacturer, why not buy it for peace of mind? The reality of warranties and insurance is that you hope to not have to use them.
For Christmas in 1998, my husband and I decided to buy a new television with his Christmas bonus. We bought a 27" Toshiba from Montgomery Wards. The Wards salesman was pushing the extended warranty very, very hard, telling us all the horrible things that could happen to the television, including “your kids could be throwing a football in the house and hit the screen.” We told him no thanks, we’d take our chances.
Over nine years later, the TV works just fine. Montgomery Wards, on the other hand, has gone bankrupt, closed, been torn down, and replaced with a Home Depot.
Probably not such a good idea to buy an extended warranty when the store might not even last that long!
Googling suggests the going price for this TV is around $1500 - so $200 is 13%. Unless Samsung is atypical, you get a one-year warranty for free - and of the few TVs that fail, a high percentage do so within the first few months. I’m guessing your extended warranty runs out to about 5 years - probably not the nine you give as the expected life.
If 13% of these TVs fail in their 2nd to 5th year, your warranty is on average a break-even deal. Given typical industry experience, the actual figure is probably well under 5%. You have given cash up front, which could have been in the bank building value toward that super-sexy 64" Samsung LNT-9900 ultra-high-res set that you’ll find almost irrestible when it’s released in 2012.
Experience with most consumer electronics suggests this hope will be realized - which makes a sound argument for not paying.
Well, I’ll add a story:
Back in 2002, I bought a rear-projection HDTV, and I bought the extended warranty (really, a four-year in-home service contract) that they offered, because I was just skittish about my huge purchase. About three years later, the set went POOF and refused to turn on; when you pushed the power button, the light flashed red for a while, then quit. So, I called the number on my service contract.
They put me in touch with a local outfit (of which there’s basically one) that does in-home TV service. I got an appointment for about a week later, the earliest possible date. The guy came out, checked the code, inspected the TV, and said he’d have to order a part, which would take about two weeks to come in, and then I’d have to call to make another appointment. So, I did, and it took about another week after the part came in for an appointment. He came and installed the part, and the TV continues to work to this day.
Now, I suspect that this service call, being in-home and all, would have run about the same as I spent on the service contract. So, I don’t feel like I lost anything on the deal. However, you should be aware that even free, in-home service can take a lot of time; I was without my lovely big TV for about a month, even with the extra dough I spent on the contract. Also, be aware that the place you buy from probably doesn’t do the service themselves, but rather farms the work out to local repair shops, and there’s no telling what their schedules will be like when your device breaks.
We did also buy an extended warranty from Sears when we bought our Kenmore fridge, and that has paid off in spades, because the icemaker has been a nightmare; at $150 per service call, we’re WAY ahead on that one.
Anyway, I suppose my general rule is, only consider a service contract for something you absolutely do not want to carry to a repair shop, like a fridge or a 160-pound TV.
A few other reasons why extended warranties are so profitable:
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time value of money. The extended warranty doesn’t even kick in until the manufacturer’s warranty ends. But you pay for it up front. That means the warranty company gets an interest free loan from you during the period of the manufacturer’s warranty. For example, if the manufacturer’s warranty is 2 years, and the extended warranty is for 3 more years, then if you took the $200 and put it in a 5% interest bearing account, by the time the manufacturer’s warranty is over you’ve got $222. That’s what the extended warranty is *really costing you.
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Many people don’t claim the extended warranty even if the item breaks. Think about it - what do you think Plasma and LCD TVs will be worth in four years? How much better do you think they’ll be? How many new features will they have that aren’t available today? If the TV breaks in four years, and the warranty company makes you jump through a bunch of hoops to get it fixed, but a new TV is only $500, a lot of people will simply abandon the warranty. Maybe not on an item as expensive as a TV, but think of all those extended warranties they sell for small electronics like cordless phones and answering machines and such. How many people do you think even remember all the little extended warranties they have, and how many are willing to box up and mail away a four year old cordless phone and go phone-less while waiting for it to come back? Or will they just go and buy a $30 replacement?
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Extended warranties are specifically designed to be offered during the period of a device’s life when the failure rate is the lowest. The life of a piece of electronics follows a ‘bathtub’ curve - an initially high and decreasing slope at the front end, which represents manufacturing defects. The manufacturer’s warranty covers this period. Then there is a long period where all early defects have been shaken out, and parts can be expected to last for their design life. Finally, the device begins to wear out, and the failure curve starts to slope upwards again as it becomes more and more likely that parts will fail from long use.
Extended warranties always cover that middle section where failure rates are very low. They expire before the curve starts to slope upwards again. And if there are isolated parts that exhibit random failures or a particularly short lifespan, they’ll often be excluded from the warranty.
Here’s the best advice you could get: Every time you buy an electronics device and are offered an extended warranty, decline it. But take the money it would have cost and put it in a ‘warranty account’ in your bank. Before long, you’ll have hundreds or thousands of dollars in there - enough to cover the replacement cost of devices as they fail. And you’ll be the one earning the interest on your money - not the warranty company.
AN! NOT AND! AN! AN! AN! AN!
::runs screaming from room::
I just had a transformer blow up on my 52" projection HDTV last week. It’s a little over 3 years old and we had purchased no extended warrantee. The guy replaced the part, cleaned and adjusted the internals and while he was there we had him clean and adjust our other 52" projection TV. Total cost was $290 and about 2 hours on Saturday. Put the cash you would have spent on the warrantee into a CD at the bank and if you ever need the money for repairs you will probably be able to buy a new DVD with the interest to try out your newly repaired TV.