Today, I bought a Nerf basketball. I was offered a warranty on it at the register. I said, “It’s a basketball!” She told me they also offered warranties on stuffed animals, dolls… I can see something (maybe) expensive with moving parts, but not this
My grandmother used to say, “What they won’t make to take your money.”
An add-on warranty is just a another form of insurance and actuarial science is predicated on the fact that they will make more money by designing the policy to take in more money than it pays out. It is no different than a casino except the single digit expected values from casino bets look paltry compared to add-on or extended warranties.
No, a basketball doesn’t need an additional warranty but neither does your computer, TV, vehicle, appliances or iPhones. Sure, you may get (un)lucky once in a while and actually use one but you are guaranteed to lose overall if you buy them consistently in the long-term.
The only insurance policies that are justified are for risks that would cause life-altering financial devastation if they happened. The list of those is fairly small and only includes things like home owners insurance, medical, auto liability and sometimes term life and disability coverage. You will lose money on those too on average but at least they give you piece of mind and pay real money if something really bad happens.
The smaller risks aren’t worth insuring against. You are almost always better off just taking the money you would have spent on the warranty or insurance and just plopping it into a special savings account with a couple of thousand dollars in it to smooth out common bad-luck events. The difference is that account will almost always grow over time and you get to keep the money in the extremely likely event that you win those bets overall.
Thanks for the statistics and common sense reminder. I’ve been contemplating buying an extended warranty on a new car. This helps to sway the decision.
Best Buy once tried to sell me a protection plan for scratched discs on a GBA game. GBA games come on cartridges.