15

I have a practice of never buying insurance except when the law demands, such as car insurance, or when the loss would be too great to bear, such as house insurance, and this policy has saved me a lot of money over the years.

How do you react when the salesman offers you an extended 5 year guarantee on your new washing machine?

  • I think your general policy is good. I heard something interesting the other day though: many times employees get bonuses for selling these things. If you're especially happy with the person and you want to "tip" them even in a case where tips aren't normally offered, and the cost is not too high, you can accept the warranty even though you know it's pointless, as a way of being nice to them. – poolie Dec 20 '10 at 0:14
  • Also, check your credit card terms; many have a "warranty extension" policy built into them to encourage you to make large purchases on the card -- and the fact that they can afford to offer this essentially as a loss leader tells you what warranty extension is really worth in the average case. – keshlam Sep 21 '15 at 14:29
8

Generally, a polite decline.

However, I have dealt with sales people who take first refusal as a "test" response, and decide to go into the details anyway. The longer they talk the more robust my responses.

See this Telegraph article that discusses why their experts think it's a ripoff, and why you should check your credit cards and home insurance policies as they may already have you covered (possibly UK/Europe only). http://www.telegraph.co.uk/finance/personalfinance/2820644/Extended-warranties-In-our-view-its-a-rip-off.html

On a different note, see this list of questions to ask if you are considering going with the extended warranty. The source doesn't rule for or against the idea, leaving it at caveat emptor: http://www.choice.com.au/reviews-and-tests/technology/home-entertainment/accessories/extended-warranties/page/questions%20to%20ask.aspx

  • 2
    Refusals are the easiest people to sell these things to. Especially if your spouse is with you. When I peddled these things, about half of people who initially liked a warranty either change their mind due to cost or were just playing me to get the deal closed. I consistently sold these things to people who started with "no" (probably 70-80% of the time), and almost always sold them to angry people with returns (and earned a triple commission). Always go for the younger, dumber salespeople if the retailer pushes warranties hard. – duffbeer703 Dec 21 '10 at 5:22
  • duff - At first glance what you say sounds counter-intuitive, but it actually makes sense (a lot of folks say "no" initially from a passive-defensive position, whereas a lot of folks say "yes" initially from an active-aggressive position). I know the psychology from elsewhere, but never would have thought of applying it in this situation. Very interesting. – gef05 Dec 22 '10 at 21:00
11

IMO it's usually not worth it and here's why.

There's a statistical distribution of how likely a unit may fail depending on its age. Probability is high for a short period after the unit comes into use because there are parts that were not thoroughly tested and manufacturing defects. Then all those defective parts fail and get replaces and the unit likely functions without faults for years. Then it reaches it lifetime end and again probability becomes much higher - parts wear out and start failing one by one.

Every unit comes with a manufacturer warranty of one to two years already and that warranty will likely cover any defect causes by materials and manufacturing defects - the period when fault probability is initially high. "Extended warranty" only covers the unit for two-to-five years and most units have lifetime of about ten years. This means that the "extended warranty" is in effect when it is least useful.

  • +1: Great point that the warranty is usually for the period when it is least useful. – Derek Jennings Dec 20 '10 at 15:25
7

On most of the consumer electronics it would not make much sense to get Insurance. Mostly these are not priced right [are typically priced higher]. IE there is no study to arrive at equivalent claim rates as in motor vehicle. Further on most of the items there is adequate manufacturing warranty to take care of initial defects. And on most it would make sense to buy a newer model as in todays world consumer electronics are not only getting cheaper by the day, but are also have more function & features.

  • Agreed. Someone I know was recently offered a warranty on an iPod that cost as much as the iPod. – Matthew Read Dec 19 '10 at 16:52
  • Most consumer electronics -- unless you abuse it -- typically either fails very quickly once you put it into use (which the warranty covers, and which is why you want to "burn it in" before the warranty elapses) or keeps going for decades. I strongly agree with everyone who has pointed out that self-insuring is usually cheaper. – keshlam Sep 21 '15 at 14:29
5

I politely decline. Insurance is there to protect me against catastrophic financial loss (huge medical bills, owing a mortgage on a house that burned down, etc.) not a way to game the system and pay for routine expenses or repairs.

3

I decline politely. The cost of the insurance policy has two components: The actual cost of a likely repair + profit.

If I set aside the cost of a likely repair myself, then I get to keep the profit. If the item doesn't break, I get to keep the "repair" money too :)

3

Most of the consumer products that you buy at retail these days are commodity priced, and have been for a long time. Margins are thin, so if there are retail salespeople milling about, their compensation isn't coming from the TV or computer with a 6% gross margin.

It comes from the extended warranty programs (which are not insurance and do not have regulated underwriting standards), which are typically sold at a 65-95% gross margin. So that $200 warranty most likely costs the retailer $50. The salesman gets $15-25. I paid for my college education working at a CompUSA selling these things, along with other high margin items that paid commission.

In most cases, you aren't getting much coverage anyway. Most products carry a 1 year warranty, and using most "gold" or "platinum" credit cards doubles a manufacturer's warranty by up to 1 year. So with most transactions, you are already walking away with a 2 year warranty.

Warranties or service plans make sense for durable goods that cost alot and are expected to last a long time and/or require regular maintenance. I think they especially make sense if your budget is really tight -- a fixed maintenance cost can be an asset to some people because they can plan around it. Examples of this include: service plans for a furnace, boiler or water heater or a car if you're buying a manufacturer-endorsed service/maintenance plan from a dealer.

2

I usually say "no thank you", but if the salesperson gets pushy I say "if I need insurance, I guess I won't buy the product because I only want to buy quality that will last a good long while"

I have never actually walked away from a purchase because I generally research these things ahead of time, but I think I mean it when I say it.

1

One important issue that has yet to be covered is the cost (to you) in terms of paperwork, lost time, and phone calls that you have to make to claim the insurance.

Such insurance claims often are very low priority on their customer service queues (for obvious reasons, since they have already made the sale). Therefore, you might have to spend up to a few hours of your time calling or writing emails to claim the warranty, which may often not be much (

Therefore, many people end up not claiming the warranty during the hassle. Much like non-scam mail-in rebates, more often than not you would either forget to or decide it is not worth your time to claim the warranty. Before buying such policies, other than the obvious cost-benefit calculations, you should also take this additional factor into account.

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