Should you buy an extended warranty?

Not surprisingly, I'm on the road quite a bit and for fun, often stop and browse the electronics stores when I need to kill a few minutes.  (That's what geeks do.)  I'm not usually shopping, but I tinker around with stuff, see how items are placed in the store, that kind of thing.  It seems that every time I'm in a store, I hear a salesman trying to sell an extended warranty to anyone buying a computer, TV, game system, component, etc.  Using words like, "protect," "accident," and "peace of mind," they get people to cave and buy the warranties.  What's another $25, $50, or $75 dollars?

I always resist the urge to jump in the conversation.

There are a few exceptions that I'll get into, however, my general guideline is, "never."  Never buy an extended warranty.  Warranties make the companies that sell them a TON of money -- that fact alone implies it's a waste of money.

Because I'm often a sucker for that "peace of mind" argument, I made it a personal commitment to do research before hand (not just on the unit itself, but the warranty and policies), and go into the store with my mind made up.   It's amazing that the warranties offered by the big box stores and online retailers are often quite different, with different durations and prices.

So why shouldn't you buy an extended warranty?   Since most warranties cost between 15% and 25% of the cost of the item, it's really a matter of mathematics.  I saw a $3,000 TV at BestBuy have a $500 extended warranty.  That's a lot of money and a pretty big percentage of the purchase price.   Since electronics should have a warranty of their own, you're typically covered for about a year on most major electronics.   Most electronics fail either out of the box, or within the warranty period -- it's a fact.   Those that don't will either be good for the long haul, or at least outlive their extended warranties, meaning the odds of the electronics failing between the time the manufacturer's warranty ends and the time the extended warranty ends is pretty small, and not worth the price.

There's another fact, too: electronics depreciate in value extremely fast.  While you may pay $3,000 for a high end TV today, figure what the likely cost of that TV will be in three years (here's a tip: less than $1,000, if you can find it for sale still).   Blu-ray players are now less than $200, but were many hundreds more less than year ago.  It's an unfortunate truth that we're a disposable nation -- it's just not worth fixing items anymore, and instead, cheaper to simply buy new ones that likely have more features anyway.

One of the biggest questions to consider for an item is: how expensive and difficult is it to get fixed if you're not covered? 

Take gaming consoles like the Xbox 360 and PS3.  Out of warranty repairs may cost between $100 and $150.  However, that includes shipping both ways.  Paying, say, $75 for a warranty that you will likely never need when a lifetime repair costs no more than $150 ... well, it's easy math.

On the flip side, though, if you have a 60" plasma television and would need to ship it or transport it somewhere to get fixed -- quite likely, the repair cost would be huge.  DLP or lamp-based sets have warranties that also cover bulb failures -- and given that a bulb has a 60% chance of going within the first 3 years of a typical extended warranty, it may be worth the investment.

So, this is exception #1: when getting a repair is prohibitively expensive or logistically impossible.  You should know what is involved with getting a repair both in a warranty plan and outside of a warranty.  Call up Samsung, Toshiba, or Mitsubishi and ask how repairs work. 

Exception #2 is for mission-critical systems.  If you need your laptop for professional reasons and travel frequently, you should invest in a warranty plan through the manufacturer.  This is more of an insurance policy rather than a warranty -- you want to make sure you can get your system up and running in no-time.   If you do not need your laptop for professional reasons, I would avoid warranties as earmarking the money for a future upgrade will go a lot further.

Finally, you should shop around for warranties and look for bonus warranties.  Many credit card companies provide extended warranties automatically.  Check ahead of time and know if yours does -- many (if not all) Visa cards will extend the manufacturer's warranty by up to year. 

Although I'm not overly familiar with warranties for cars or homes, my opinion is the same.  When my wife and I bought our current home, the sellers provided a 1 year 2-10 Home Warranty.  It did save us with an air conditioning problem.  But dealing with the company, paying the deductibles on multiple occasions, and then -- when they ultimately replaced a component of the AC -- it didn't cover everything like refrigerant.  It was far from convenient.  Given that they wanted over $500 for another year of coverage, it was easy to pass.  Warranty horror stories are pretty easy to come by on the net. 

Regardless of whether you choose to purchase a warranty or not, I urge folks to make the decision based on logical or business reasons, not an emotional one when under the gun of a high-pressure sales tactic.  

Have a warranty horror or success story?  Let me know...

Comments (2) -

Ken Breitenstein
Ken Breitenstein
12/3/2008 10:30:11 AM #

I'm actually a big fan of car warranties.  I don't know what it is, but I get a lot of comfort out of the fact that I won't have to put money into my car for a extended period of time.  They can be pricey.  I look at it like I am putting that money toward repairs towards the car each year I plan to keep it.  King of like a guaranteed locked in rate, almost like insurance.  On my most recent car purchase I was able to get the warranty online from a dealer in another state.  It was about 60% less than the dealer I bought the car from was asking for it.   Howerver I did my homework before I went in to buy the car.  This way I knew the salesman was lying when he told me I couldn't buy the warranty after I took delivery of the car.  I could actually buy it up until the factory warranty expired.

Elliot Rodriguez
Elliot Rodriguez
12/31/2008 6:57:06 AM #

Its important to determine whether any warranty you buy is going to run concurrently with the manufacturer's warranty. It can make it difficult to figure out where to send a claim and which policy prevails. Most of the big box store warranties run concurrently with manufacturer's warranties so in the end you're paying for less time.

The only thing I've ever bought an extended warranty on is for my LCD TV, and I had to file a claim for a dead pixel. That went well. Fortunately MS took care of the 360's extended warranty (it has now died twice).

Home warranties in general are a complete waste of time. You are locked in to a specific tech, the warranty often has difficult-to-meet requirements concerning the item being repaired, and you are ultimately at their mercy when it comes to how its resolved.

What I dont like is being propositioned for a warranty on silly things. I walked into an EB games and purchased a used game for 7 dollars. The clerk asked me if I wanted to buy additional warranty protection on it for 2.99. What?
    
BTW - card warranties are useless. If they require use of the card to make the actual purchase, the interest you pay on it will probably reduce or eliminate any cost savings associated with buying the warranty outright.

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