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moneysense.ca, 16/11/06
Extended Warranties are a Sucker’s Bet
The Christmas shopping rush has already started and it is a good bet that most stores will be aggressively selling their extended warranties to unsuspecting customers. However, these warranties are a poor bet for consumers according to yet another story on this topic. The story quotes Consumer Reports as saying that these warranties only make sense for rear-projection TVs and Apple computers and is a sucker’s bet for most other consumer items. Also, don’t forget that some credit cards extend the warranty on all products purchased with the card for up to a year.
Related posts:
- Say No to Extended Warranties
- Extended Warranties [Investing Intelligently]
moneysense.ca, 16/11/06
That’s an interesting finding; Apple PC’s and Projection TV’s. I’ve always lived by these rules:
1) If the device has a non-replaceable cable and will be moved/bent, like good headphones, then it might be a good idea
2) If the device will be carried and have buttons you hit quite a bit (IE MP3 Player, high end remote, or good cordless/cell phone) it might be a good idea.
3) If the device sits still and you won’t touch it (like a TV or DVD Player, since you use the remote to control them) then don’t bother since if it’s going to fail the likely hood it it will catch fire in the first day or two or it will last years.
I know most of these plans will not cover impact damage, but for instance on the MP3 player, if your play button doesn’t work and all other functions seem to be fine, then more than likely the store will replace it. By the time you wear it out they more than likely will not have your model so you’ll also get an upgrade.
Now obviously if I buy a pair of headphones at a chain store for $24.95, I’m not going to bother with the extended warranty since when they fail I’ll just throw them out. Though if you pay $249.95 for them, then why not since my last 2 pair of Technics headphones both failed at the cable. One pair was replaced under an extended warranty, and the other lasted too long.
On an unrelated note, if anyone has good recommendations for nice quality closed headphones that fit people with unnaturally enormous ears; I’m in the market.
There is something to be said by the fact that the sales staff receive some of their highest commissions on extended warranties. I believe even the staff at the major chain in Canada who’s staff are not on commission receive a bonus for meeting their extended warranty quotas.
I just recently blogged about my frustration with extended warranty. Check it out:
http://gettingrichtogether.blogspot.com/2006/11/extended-warranty-frustration.html
True, but on big ticket consumer items like cars, you need to ask yourself whether you need this or not. I know my GM Extended warranty has been essential, or I would have pushed my Montana into a ditch months ago. I agree that on Electronic devices, there is little reason for this. –C8j
If you buy quality products (by doing your homework ahead of time), there’s likely no need to get extended warranties. It’s hilarious how a salesperson will use his/her salespitch to extoll the quality of a product, and then turn around and tell you that you’re crazy if you don’t go for an extended warranty…
As Consumer Reports says, it’s cheaper to self-insure, and if by some chance your product does break down, there’s an excellent chance that the company will try to weasel out of the warranty by claiming you misused it in some fashion.
Extended warranties have fat profit margins, which is why stores push them hard (even the non-commissioned salespeople stores). For most electronics goods, it is a poor choice for the consumer because they are falling in price all the time.
Take the digital camera I mentioned in my earlier post on this topic. The camera is still working great (knock on wood!) but even if it dies, an equivalent camera costs about $300. But the extended warranty when the original camera was purchased would have been about $200.
Ok, so here is my quandary. I recently purchased a rather large plasma TV and agreed to purchase the extended service warranty. Why?
One BIG reason…this extended warranty is a service warranty, so if anything happens to my TV the stores service professionals come to my house and either try to fix it or will replace it for me. Whereas without the service warranty, if something goes wrong with it I have to figure out how I am going to get my rather large TV to the manufacturer and pay for the cost of getting it there.
I did not want to ever have to be bothered with this inconvenience, however, don’t get me wrong I really battled with myself over this. I really think it can come down to your own situation and circumstances. In my case, and I am not sure why, but I have had a dismal history of buying duds and have often wished I had bought the extended warranty. If you are a person who has never needed one then you will think very differently.
Any thoughts?
Ryan
Read excellent book “Naked Economics: Undressing the Dismal Science” by Charles Wheelan, it has section about “Economics of Information”. General idea: if somebody sell you service and he knows much more about it (used cars, extended warranties, etc), he is the one who will win and you are the one who will lose (money).
I never buy extended warranties … two tricks I use:
- buying at Costco when I can … they strive to extend the service beyond the 1 year default. I’ve returned broken electronics there way past the 1 year and they’ve always given me back my money!
- otherwise using credit cards that extend the warranty
Apple computers come with a one year parts/labour warranty on hardware much like any other computer. The first ninety days are also covered by toll free technical support. After ninety days this service costs $60 per incident to use. Apple’s extended warranty extend the one year to three years but also extends the complimentary toll free tech support to the full three years.
For a lot of people buying their first computer or making the well-advised switch from Windows, this warranty is invaluable for the tech support aside from the hardware warranty extension.
Paul: Thanks for your input. When I next purchase a computer, it will be an Apple, so thanks for your tip. $60 also sounds reasonable for the extended warranty.
Apple’s extended warranty sells for between $199.99 and $399.99 depending on the type of computer. Let me know if you need any help or advice – I sell them for a living!
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