The more an “extra” is pushed on me - cars or whatever - the more I realize that there is a reason they really want me to buy it.
Hint: It’s not because it benefits me.
mmm
I agree with all of that. Just Googling the question ‘are extended warranties worth buying?’ results in them generally not being recommended. Also many people think an extended warranty means an instant, no-cost fix no matter what happens, and that is simply not the case. Many of these warranties only cover certain parts of the vehicle - or home, and those not-covered things are usually the least likely to go wrong. People buy the warranty without reading the details and end up with a harsh surprise when they’re at a repair shop and discover many of the things not covered are in fact very expensive to fix or replace.
I’ve also read that some shops will not work on cars brought in under an extended warranty because the mechanics or managers don’t want to have to spend 45 minutes on the phone arguing with the warranty company rep about something they’re balking at covering.
The one exception I would (maybe) make to my comments is when buying a new TV. My friend who worked at a warranty repair center for many decades and says he advises everyone these days to get an extended warranty on TVs, because they fail so often and are almost never repairable anymore. At least not economically. Many are DOA as well. So yeah, if I were buying a new TV, I would get the extended warranty.
Absolutely without exception they are scams IMO
No, I do not. My logic is that the pricing of extended warranties is all based on statistical probabilities, so in the long run, if you make a habit of buying these contracts, you’re guaranteed to be on the losing end of the deal and the outfits writing the contracts are guaranteed to make a tidy profit. I think of it as a form of self-insurance.
I’ve never bought pet insurance for the same reason, and in fact the deal there is even worse the last time I looked at the fine print, because there are so many limitations and exclusions that it’s hard to see a benefit. I would never deny my dog the best of care but self-insuring is the way to go.
The only justification I can fathom for one of those extended warranty deals is to hedge against a potential catastrophic failure that you couldn’t afford to repair.
How do you guys figure the contract writers stay in business? Not snark, it’s a serious question.
They make their money on people who wait until something breaks down before using their warranty. Inna’s ex-husband was one of those people.
And financing effects. Can’t forget that.
If they are DOA then they are covered under the regular warranty. The extended warranty is a different animal*.
I had a 30 year career as a manufacturing engineer producing cutting edge high tech consumer products or components for those products. Unless you have some weird edge case where you can game the system, you should never get these.
Failure rate happens with a thing called a bathtub curve. There are a fair number of failures early on and those are covered by the regular manufacturer’s warranty. Then there are very few failures for years. Then there is another much larger spike. Guess when that hockey stick starts on the chart…right when the extended warranty ends. The are, on the whole, a terrible deal.
*I have worked in the flat panel display industry, mostly as a consultant, since 2002. I have installed equipment in dozens of warranty repair factories across the US and in several different countries just like the one where your friend works. He is mistaken.
More or less as @JohnT said above.
IME they tend to overprice the contracts on ordinary cars and underprice the contracts on fancy cars.
Like every insurer of every type, they’re expecting to make money on most contracts and lose money on some. I just make damned sure I’m one of the ones they lose money on.
Having a car whose parts are expensive, and having a shop that knows how to play the game, and having an attitude that if anything isn’t still in factory new perfect condition it needs to be replaced with new, pretty well ensures I burn up the max lifetime payout on the contract. Which max lifetime payout is anywhere from 4x to 5x the purchase price.
Example from a prior ca: There was a small control panel built into the driver’s door with switches for all the power windows. Which panel got scuffed up enough it looked like shit. So I had it replaced as “defective”. The replacement part is only sold as a consolidated unit of faceplate and switches and guts and wiring harness. There’s $500 right there. Car looks new inside again. Etc.
I’ve never known any insurer willing to lose money on any contract, but if you’ve found a loophole that works for you, congrats!
IIRC, I think I bought something like an extended warranty only once, when I bought my son one of the first original X-Box consoles for Christmas, because I had read that many of them had been failing prematurely because of some systemic manufacturing issue. Sure enough, it wasn’t long before this one failed.
The experience at Best Buy wasn’t great. This was years ago, but again, IIRC, they tried to repair it themselves in their own service department and weren’t being very successful. So I had to do a male version of a Karen act and escalate to a manager, politely but firmly refusing to yield on my demand for a new one, and they eventually agreed to replace it.
So the moral of the story is that not only are extended warranties or service contracts almost always a bad deal in terms of cost, but you don’t necessarily even get the service you’re entitled to expect out of them without becoming an aggressive Karen.
That can be very valuable! When everybody in the neighbourhood had roof damage after a fierce storm some years ago, the roofer I hired had just that kind of expertise at dealing with insurers. The insurer initially just wanted to pay for replacement of the damaged sections of roof. But by the time my guy was done with them, they paid for (a) replacement of the entire roof, (b) with upgraded architectural shingles, and (c) replacement of all the eavestroughs, too.
The guy complained about how difficult insurance companies were to deal with, but he sure knew how to do it!
Well, if my house burns down and they have to rebuild it, they’re losing money on my policy. That’s kind of the point, since most houses don’t burn down they’re way ahead (with proper underwriting and pricing)
As for warranties, when I bought our house it came with a one-year warranty on systems and appliances. As it turns out, we needed a new heat pump in the first year and it was replaced at no cost to us. I was impressed and bought another year (maybe two). Everything after that first claim was a hassle. They tried repeatedly to fix things that should have been replaced. There was a $75 per visit charge for some things. Quickly let it lapse. But the first year was great.
A month?
Full sized are no longer standard, many have a emergency “donut” tire. Some just give you a can or something. The donut is okay, but if it is only the can- hmm, I’d ask about that.
That is not a un-reliable car-
Those are thousands. For the ten year contract.
Of course, but what I mean is that their underwriters price out policy premiums so that I’d think that on the basis of statistical probability they’d expect all of them to be profitable. And if you do make a claim, creating a loss for them in any given year, sooner or later – probably sooner – you’ll be paying higher premiums so they can make the money back.
On a closely related issue, I could kick myself for putting up for so many years with a hot water tank rental. It was probably fully amortized within the first 2 to 3 years, and I’ve been paying it for over 15. Its only actual value is insurance – they’re responsible for maintenance or replacement if there’s a problem, but no way that’s worth $50 a month!
I probably would have ignored the whole issue and not even noticed, but the gas company cleverly spun off the maintenance and rental business to a separate company. Which I wasn’t even aware of until I started getting threatening notices from the new company about overdue bills. Great business move, guys! My reaction to all the threats was to pay the bills, pay the nominal buyout on the hot water tank, and inform them in no uncertain terms that I never want to hear from them ever again.
I bought an extended warranty when I got my 2007 Mazda 3. The policy was not from Mazda–the dealer was acting as a broker for the insurance company. What sealed the deal for me was a provision that gave me my money back (minus admin fee of 10%) if I didn’t use the warranty after something like 100K miles.
The car turned out to be trouble-free so when the time came I took my contract in to cash out the refund. This is where things got interesting and the dealership really earned my trust(?!).
Turns out the insurance company had gone out of business and at first I thought I was SOL. But the owner of the dealership had decided to honor the policies and I got my money back no questions asked.
The factories where I consulted had contracts with places like Best Buy, Apple and even Blackberry back in the day. All of those mostly early warranty returns would be boxed up and sent to them. They’d diagnose the problem and then replace the part usually taken from a different assembly. They would have spare parts too but typically the end result was a Frankenstein so for every 1000 pieces shipped, they’d get 900-ish working models. Those are the refurb items that you see for sale sometimes. The “new” ones that you get when you have a return are typically refurbs.
There’s a thing called “competition” that prevents them from making such a one-way bet. The only companies that can make money on every policy they write are the scammers who intend from the git-go never to pay on any policy. So don’t buy from them.
And the typical car service policy is paid with one premium at the outset for the life of the policy. They have no ability to raise your premiums later. They also get to invest your money for several years, while you don’t, so that helps their bottom line.
The typical car policy is for a fixed term of years or miles, whichever occurs first. Usually at the assumed mileage of 12 or 15K miles per year. E.g. a 4-year 48K mile policy. Or a 5-year 75K mile policy.
Policies also typically have a maximum lifetime payout of $X (some multiple of your premium, which is what makes it possible for the consumer to come out ahead), or whenever the cumulative payout exceeds the Blue Book value of the car. So as the car depreciates, and you build up repairs having been paid for, eventually those two curves cross and then you’re done. Which leads to a bit of a race to have your expensive failures early. They won’t put a $10K transmission in a car worth $5K.
I have the same car in the ‘23! The only extra I got was for upholstery repairs and the like. I usually don’t ever buy any extended warranties.
I have to decide if I want to buy an extended warranty on my car. The battery and drive unit warranty expires in September. Tesla is offering a 2 year extension for $2000.
If the battery fails outside the warranty, the car is totaled, and only worth scrap value. I think $2000 is too much, though. I’d do it for $500.
At near $20,000 to replace the battery, the $2000 number tells me Tesla thinks much fewer than 1 in 10 cars will need a new battery in years 8-10.
Does the warrantee cover only the battery? The more stuff it covers the muddier that back-of-envelope computation gets.
On an older car like yours, a valuable question to know about the warrantee is whether it’s transferable to the next owner if you sell the car. And does that also apply to dealer trade-ins / sales or only to sales to a private party. When looking to buy a used car, one with time and miles left on an extended warrantee is a plus.
A factor for older cars also is that if the car is wrecked, the service contract / warrantee is irrelevant. For every 100 cars built, X% of them are destroyed (“totalled”) each year. If every one of those cars has an aftermarket warrantee, the company gets away free. In most cases your policy provides you can apply for a pro-rata refund of the years or miles unused. But you have to know to do that. And lotta people don’t.
Now you’re not gonna wreck your car. But when Tesla or whoever is doing their actuarial analysis, cars that are wrecked before the battery needs replacement are cars that never need a battery replacement. Hooray for them.
Then, no.
Really what else is there to go wrong on that battery with wheels? BTW, the regular warranty is eight years or 120k miles if your capacity falls below 70% or fails completely.