15

When shopping for big budget items like TV's and appliances, the resellers (e.g. Best Buy, FutureShop) will often sell an extended warranty that covers the product well beyond the manufacturer's warranty. Is this worth spending the money?

  • 2
    For electronics equipment especially, except if it doesn't work right out of the box or fails within 30 days or so (which should be covered by the manufacturer's warranty as well as the store's warranty), the electronics will last far longer than the warranty. More electronic equipment is thrown out because the owner wants something newer or with new features than because it ceased to function. I have a 32" CRT TV manufactured in 1992 that is still in good working condition and can be used to watch videotapes, DVDs, and TV (with a converter). – Dilip Sarwate Mar 15 '12 at 22:31
13

My knee-jerk reaction was "no, they are not worth it", but I took a little time to look up what some of the trusted names in consumer electronics reviews had to say about extended warranties/service contracts.

A cnet writer said that your decision should consider the price of the service contract relative to the price of the item you're buying, as well as the amount of hassle you're willing to endure, should something go wrong.

Consumer Reports believes that the warranties that come with your products are almost always enough, and they say that electronics and appliances are so well-built nowadays, the likelihood of you needing extra service before you upgrade are slim-to-none.

And the folks over at epinions.com offer the same maybe-yes-maybe-no advice as the cnet guys: depends on your appetite for risk and the options available to you.

So I would suggest that the answer be "no" most of the time, but consider it anyway.

16

Even without analyzing the math or doing a complete risk assesment, consider the following:

  • They wouldn't be doing such a hard sell if these warranties weren't a big profit center for the companies that offer them
  • Extended warranties are essentially insurance policies. Insurance policies generally only make sense to protect you from major financial hardship by transferring risk to the company issuing the insurance. I wouldn't buy insurance or a warranty on anything unless the cost or repairing/replacing it wouldn't put me in a bad way with my finances.
  • When you buy these you are betting that the cost of the warranty will be less than the cost of any replacement/repair cost, the company offering it is betting on the other side of the equation AND they set the price. Consider who in this transaction has better information about repair/replacement costs for the item. Hint: It isn't you.
  • @JohnFx: Repair costs are high margin for repairers because they are a one off expense, while insurance companies can bargain them down to lower prices. – Casebash Mar 15 '12 at 0:06
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    John has completely hit the nail on the head: "They wouldn't be doing such a hard sell if these warranties weren't a big profit center for the companies that offer them: – Fattie Oct 18 '16 at 14:25
10

I worked for a major retailer that offered such extended warranties. Our profit margin on these "product protection plans" was ~80%. That should tell you something about how much they are "worth" to the consumer.

6

I was just reading Consumer Reports' December 2009 issue. The issue's focus is electronics, and there was a small section on extended warranties in the "Best electronics" article. Here's what they said:

Extended warranties still aren't worth buying

Seven in 10 respondents to our survey on buying major electronics reported they were pitched an extended warrranty. However hard they're sold, extended warranties are generally bad investments. Most electronics products won't need a repair, especially if you choose brands that have fared better than others in the reliability ratings we include in this section. In the unlikely event they break, other Consumer Reports survey data has shown, the average repair bill is often comparable with the cost of a warranty.

However, buying a plan that includes accidental damage might be worth considering for a laptop or netbook that you'll use a lot on the go. And buying a computer warranty that extends tech support, too, might make sense if you or a gift recipient could use a lot of hand-holding.

[...]

Paying with your credit card might automatically double the manufacturers' warranty and offer other benefits at no extra cost [...]

BTW, I like Consumer Reports and I am a long-time subscriber. Check them out if you haven't before.

4

In my opinion it depends on the type of product. I would get a warranty for a washing machine or tumble dryer or other product with lots of moving parts that is liable to break down. I also take into account my luck, the one washing machine I didn't get covered broke down 2 weeks outside the normal warranty period...

I would not get a warranty for a consumer electronics product like a TV, PC, or iPod because they devalue so quickly.

As a rule of thumb, if the model you buy today is going to be on sale for the next few years for around the same price and has moving parts, it is worth considering a warranty. If it will be worth a small percentage of its value because newer faster shinier models come along to replace it don't bother.

I would also not get the warranty from the shop I bought the product from. You can get warranties for consumer products from specialist third parties that will allow you to cover multiple products for a discount. These work out a lot cheaper than the one the shop will give you. For example in the UK, DomGen will cover 3 appliances for £14.99/month and 6 for £20.99/month

  • +1. Excellent answer. On the last part, though - how reliable are those 3rd party warranty companies? Know anybody who made a successful claim without a hassle? – Chris W. Rea Nov 20 '09 at 12:35
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    Not personally, there is a consumer TV show in the UK that fairly recently found in general they were no worse than the primary retailers. I'll see if I can find a reference – Rich Seller Nov 20 '09 at 12:47
4

To take a higher level view of this, consider the warranty as buying insurance. They want to sell you the warranty because there's profit in it for them over the aggregate of all the warranties they sell.

So ask yourself, would having to replace this item out of your own pocket cause you a significant financial burden? Items like houses we insure because we can't afford to lose the investment. Items like cars we get liability insurance because we can't afford to pay for another person's medical costs if we're liable for their injury.

On the other hand, if you're talking about a $1000 piece of equipment in your house, this won't break you. That means you can self-insure, and if you do that for all the items you purchase, over the long haul, then you will save money (equal to the profit that the company expects on the warranties).

So I say, no, don't buy extended warranties. The more they're trying to sell it to you, the less you should be willing to buy it (because the higher their profit margin is if they can convince you to buy it).

3

The issuer of the service contract is making money. DO NOT buy these contracts. Self insure over your life time 40/60 years and you will save money.

-1

Watch this super late post to a 2009 thread. Thread Necromancy in action!

Yes, it's absolutely worth it to get an extended warranty because electronics just don't last as long as they used to. This is ever more prevalent in the year 2013.

Is it a ripoff? Future Shop (in Canada) and Best Buy (U.S. & Canada) offer warranties that are typically 25% of the cost of the product. That's a huge mark-up, massive! Yet, to my knowledge they are one of the only retailers that you can walk into the store and just drop it off for exchange. As opposed to, buying a 3rd party extended warranty that is considerably less expensive, yet it puts the burden on you to mail the product in, wait for god knows how long to receive a refurbished, repaired, or new (their choice) product.

It's a gamble, an expensive one. Yet, if you're spending top dollar on a product, wouldn't you like to have some peace of mind that it will last you at least 2-3 years. Unfortunately as I mentioned earlier, electronics (or anything for that matter) just aren't as reliable as you'd hope.

The Xbox 360 gaming console was notorious for being poorly made. In fact, many people not only had to take advantage of the extended warranty, but had to do so, more than 2-3 times. So make sure you do your homework on a product, before you even think about buying it.

What do I do? I buy at Future Shop, Best Buy or Staples for the convenience of dropping off the product in the event of an issue. I really don't want to bother with the hassle of applying for warranty service and long mail-in / return wait period. If the product is $100 or so, forget it..and just buy it whoever has it cheapest and cross your fingers.

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    "because electronics just don't last as long as they used to" Any real data to support this unsubstantiated generality? If 25% is true, and one buys 4 items, they might self-insure, putting aside the cost of that replacement. I don't get the sense that electronics fail at a 25% rate over a 3 year period. – JTP - Apologise to Monica Nov 26 '13 at 20:48
  • According to many consumer reports I have read and heard, consumer electronics are MUCH more reliable than years go by. I can't cite a source, but can you? Perhaps if much of what I buy breaks, I should spend more time researching for quality. – MrChrister Nov 27 '13 at 1:07
  • The XBOX360 is the ONLY time I ever considered the extended warranty a good deal and bought it. I replaced mine under warranty twice, they had major manufacturing problems. – JohnFx May 18 '17 at 19:45

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