At one point I intended to do a post about extended warranties. You know when you walk into Best Buy, Future Shop, or Circuit City (in nómine patris et fílii et spíritus sancti) and finally settle on a DVD player or laptop and then the sales guy does everything but threaten a loved one with grievous injury unless you buy an extended warranty. Yeah. Those things. I've always been highly skeptical of their value. The desperation with which sales people push them and the occasional spiteful service you get when you refuse the warranty further adds to my skepticism.
Also when they try to push a warranty on proven, stable solid state technology like a TV, I'm further suspicious. TVs have been around for more than half a century. They have no moving parts. They have a known bathtub failure curve. They come with a respectable manufacturer warranty that covers the left side of the bathtub curve. I've never had a TV fail in the first ten years of ownership. The $300 TV I'm buying today is going to cost me $300 to replace in 10 years. The absolute price won't change. The $100 you want me to pony up for an extended warranty has more value to me now than the faint risk of having to spend $300 on a new TV in 5 years.
Think hard about other durable goods you or your family have purchased in your life time. We'd not call them durable goods if they weren't, in fact, durable. Ever have a fridge or stove or microwave fritz out after 3 or 4 years? GE would not have been in the fridge business for long if it were the Hyundai Pony of whiteware makers.
Finally, I'm one of those types who spends a long time researching any purchase over $100. So when I finally go to buy the TV, the car, the laptop, I know exactly what I'm getting for my money. It always throws me, however, when the sales guy wants me to part with another $50 or $100 or $300 for some extended warranty plan I've had zero time to research. If these plans were so great, wouldn't you think they'd let you purchase them, say, up to 30 days after owning the product when you can do your research? Of course, if you did your research, you would reject the extended warranty.
As an alternative, one might also consider getting one of those premium gold or platinum credit cards that automatically tack on extra time to a product's warranty. If you buy a lot of electronics and durable goods, it might be worth a gold card's $50 yearly fee.
The only time I bought an extended warranty was on a VCR several years ago. I think it was $50 and I had learned from previous experience VCRs have a way of breaking after 2 or 3 years and it can run you $300 to fix the damn things. Sure enough, 2 years into the product's life it broke and I was able to use the extended warranty to get it fixed for free.
Anyway, the wizards over at the Skeptech podcast have actually done an amazing job of analyzing the whole extended warranty deal. Instead of duplicating their research, I'll just point you to their podcast (and make sure you listen to the rest of them... good stuff, Maynard). Grab a listen to this infrequent but much needed niche filler in skeptical podcasting.
A few of the money shots from that podcast:
1) Most of these warranties are with a third party and if the third party goes bankrupt, you're out of luck.
2) These third parties don't have a vested interest in customer satisfaction or doing quality repairs. They'll delay as long as possible and fix it as cheaply as possible.
3) Some won't even honor the warranty if the repair costs more than the item.
4) Your warranty is void if there is any damage, even if the damage is in an area that doesn't affect the function. And they can be very picky. A scuffed up case might well be considered damage.
A few links to get you started while you wait for the podcast to download:
Consumer Reports on extended warranties
CBC's Marketplace on extended warranties
If you've had luck, good or ill, with an extended warranty or have a memorable story of a sales guy pushing one in a really obnoxious way, feel free to leave a comment. I'd like to hear.
-- Karl Mamer
Addendum: Just yesterday I got my car insurance renewal. The good news is my rate has been lowered $20 a month. (See my previous post about budgeting as to why that's such a great thing, puts a spring in my step, and boosts my confidence with women.) In all the promotional fluff and feathers that comes with your new slips was a blurb about what can be best described as insurance for your car insurance. In other words, if you smack into someone, your rates will jump. But for only an extra, I dunno, $50 a month, you can now ensure yourself against your rates going up. My mind boggles.
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Karl,
ReplyDeleteI'm absolutely in agreement with you on most items. However, I've got to disagree when it comes to laptops. Having worked in the tech support business, laptops fail often enough and are expensive enough to repair that the warranty is worth it. I'm particularly fond of Dell's accidental damage coverage... if you drop your machine, Dell will exchange it for a like or better system at no cost, even if it's completely destroyed.
Granted, now that laptops have gotten to the sub-$600 range, it may not be worth it to spend an extra $200 on a warranty. But when I bought my last one, the machine itself was $1500... I'll happily pay the $200 to cover me in case my LCD display is damaged or fails.
It's a good point. If you can get an extended plan directly from the manufacturer itself (Dell, Apple, etc.) that is probably much better. I think one of the problem with EWs offered by the big box places is they're third party and some cases the fine print works against you.
ReplyDeleteI purchased a extended warranty from Best Buy, for my rear projection LCD TV, as I was not sure what the lifetime on the bulbs is and they are pretty expensive. I have had service twice, good experience there, and they have replaced the bulb once. I would have to say closest to my money's worth for an extended warranty.
ReplyDeleteI replaced my digital camera at Costco on their warranty plan (no cost, it's part of the membership) after dropping it. One of the switches stopped working. They didn't ask any questions, they just refunded the purchase price to a gift card and I picked up another.
ReplyDeleteThe only thing I've purchased a warranty for since then is my new camera. It's expensive enough that if I drop it, I can't replace it easily. The warranty covers accidental damage as well as defects for four years and only cost about $40. For a $700 camera I deemed it worthwhile. I'm clumsy. It doesn't cover theft, but my home owner's insurance should cover that. My only concern is if the warranty company isn't reputable. And I have Amazon to complain to if they aren't. Hopefully a little muscle will help if the situation arises.
The anecdotes in the comments highlight a key to the extended warranty math: the frequency or probability of a repair. Those warranties that cover accidental breakage of easily destroyed items (like laptops and cameras) are worth a look at least. Keep in mind that the sellers of warranties are guaranteed a profit because they know the failure rates and price accordingly.
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