Slashdot Mirror
Do You Buy Extended Warranties?
Stackdump asks: "I am a college student (senior seeking CS BS). I work partime at Best Buy selling computers (arg!). To be truthful I don't really sell computers; I sell what we call 'performance service plans' or PSP's for short. This is the somewhat gimmicky name given to Best Buy's extended warranties. To be fair they do actually provide some service in the store, swapping HDs, CDROMs, and so forth, but most of the hardcore repairs are done elsewhere or by the manufacturer. Prices range from $99 on the cheapest tower to $249 on laptops over $1000. Terms of service are pretty simple everything is covered against power surge, dust contamination, whatever... BUT abuse is not covered: so slam a pencil in your laptop and say byebye, but fry your computer because you don't have a surge protector and you can get a new one. As this is the central pre-occupation of my work day I ask the Slashdot community this: do you feel these warranties are really worth the money?"
No, they aren't worth it. They are a tremendous profit margin for Best Buy, which is why you even get a commission (which you failed to mention) for selling them. The high pressure sales tactics some people employ to push these things thoroughly sours my shopping experience in what should be the equivelant of my toy store. They are much like rebates, they are great for the vendor because people usually don't collect on the value they purchased. It's all a statistical formula at the end of the day. It does appeal to a specific market segment and demand, or else no one would buy them.
They are a scam. Salespeople are under incredible pressure to sell them -- try telling the salesperson you don't want one! They will beg and plead with you and ask you "why" -- they have to put down a reason. Say, "I just don't want one." They will go nuts. The so-called "extended warranty" is way overpriced and full of loopholes and exclusions. They are a major profit center for the big consumer electronics chains of this world. Most products already come with manufacturers' warranties -- the product will either fail within the original mfr's warranty period or it will outlast the "extended" period. And if someone dumb, like your grandma, buys an "extended warranty," good luck finding the sales receipt or other information -- most of us aren't that well organized.
You probably don't need one for your TV or stereo system (even though you get free speaker tweaking or whatever). These things are cheap enough and don't move around enough to face actual dangers. Also, if there's going to be a problem, it will be usually right away when those problems crop up, well under the normal 30-day guarantee most shops provide.
But for other things like laptops, cameras, and other things that move around all the time to environments that differ in humidity, pressure, electrical stability, etc. it is a good idea to pay an extra 20 bucks to make sure you can get these things serviced for cheap. You may never need to send it in, but in the odd chance you do, you will be saving hundreds of dollars.
I have been pwned because my
Best Buy wouldn't sell these if they didn't make money on them. If they're making money on them they pay out less than they collect. Therefore, over the term of the warranty, you're less likely to receive the money you paid for the warranty back in terms of repair cost than not.
;)
So if it's not a good economic proposition to buy a warranty (insurance), why does anybody do it? Well, on a house or a car, you can't afford to cover the cost of a loss, or a lawsuit (auto liability). If your house burns down, you can't afford to just buy a new house, but if you really could it wouldn't make sense to pay homeowners' insurance because the odds that your house will ever burn down are really low.
With a computer, or a TV you can usually afford to cover the cost of a loss, so, the odds are in your favor to not buy the warranty.
That said, Staples offers a nice warranty - any problems whatsoever and you get a Staples cash card for the original purchase price of the item, no questions asked (I even read the fine print). So, on my $89 Palm I paid $10 for the warranty, since it might malfunction by time I need to upgrade.
My God, it's Full of Source!
OUTSIDE_IP=$(dig +short my.ip @outsideip.net)
I almost bought one on a digital camcorder, particularly because the saleskid said it would be covered if it got dropped, got wet, etc. But when I read the policy before checking out, almost everything he said was wrong. Almost nothing was covered. Now I never buy them.
I have had my cell phone "break" about 5 times now over 2 years to get a full replacement each time.
Also these things will cover your laptop battery for years. Consider the cost of a replacement battery (for most laptops this is the same as the cost of the PSP) its an insanely great deal.
Over all, I figure I have cost BestBuy about twice as much as they ever paid me :) Would I buy anything from them with one of these deals without the discount? Hell No!
I have gotten the warranty on almost everything i have bought @ circuit City, and it has been worth it every time.
My desktop computer - Warranty cost = $149
Replaced HD - (got a bigger one for free)
Replaced CD drive (got a faster one)
Replaced Monitor (got a better one)
My Laptop - $199
Replaced HD (dropped it)
Replaced DVD
Replaced Monitor Port on back (got bunged up)
still got time left
and the video card is gonna fry soon so... (contact me if u have any exp for why my compaq 1700XL 265 screen would turn white and not go back till it cools off)
My Stereo - $60 for a $500 surround sound package
Replaced Reciever (power surge)
Replaced Center speaker ??
My Minidisc - 40ish
they will send me a check for 149.99 (what i paid) if it breaks
(it may break about a month before 2 years???)
Conscience is the inner voice that warns us somebody is looking - H.L. Mencken
First, let me preface this with a disclaimer: A large part of my family's stock portfolio is in Best Buy, so I'm biased toward the store.
Having said that, of course they're not worth it, and simple math should show you that. If it were worth it for the customer, a product of this type would not make a profit for the store and they wouldn't be pusing them so hard.
If I spend $100 on an extended warranty (whatever it's called), and get $100 in parts for it, the store doesn't make money. They make a profit because the products are generally reliable and only a tiny fraction of these extended warranties. It's the same as insurance -- you pay huge bucks for insurance and if you ever file a claim, they either drop you or up your premium to help pay for what they've spent. In theory, you're paying them to take care of you if you ever need it. As long as you're paying in and not taking out, they make money.
As long as most customers that buy extended warranties don't file claims, the store makes a huge profit. You can bet that if a particular product were unstable and not reliable and everyone who bought an extended warranty on it filed a claim, they'd stop offering the e.w. on that product because it would no longer be profitable.
On the other hand, if you're Joe User and have a life (instead of spending it all mucking w/ 'puters), there is the benefit of not having to worry about replacing parts.
I purchased one on a few things... sometimes, if you use them, they make sense.
For example, I purchased a handspring visor prism and paid 80$ for a warranty. 1.5 years later, the battery ceased holding a charge. I took it back to my local best buy, and they took it back, and gave me credit for 450$ towards a new handheld. When i picked the sony clie 615c, they rang it up as 450$ instead of 350$, so that I would have the full amount of credit if it ever went bad. I havent had to use that yet, but wouldnt hesitate if i had a problem. It was a completely painless experience.
In fact, it prompted me to spend the money on a plan for my digital camera, because it also covers the batteries and such. So in a year, when the 100$ battery stops charging fully, i can just swap for a new one... all because of a $30 up front plan.
In some cases it doesnt make sense. But in the case of smaller things where some essential component cant be cheaply replaced (i.e. batteries in pdas, digitizers, lenses, etc) it makes a ton of sense... and if you ever need it, they essentially throw in an upgrade for free.
Not a bad deal really.
On expensive portable items, if you plan to use them a lot. I've already ruined one keyboard on my laptop, and was happy to not pay $300 (or so) to have it fixed. Same thing with my phone. My Motorola V-BOX POS finally busted a few months ago and they were happy to replace it with a Nokia 8390. And then the power button on that busted, so I got a third phone (which I had to unlock manually because Rogers are stupid).
:-)
I doubt I'd get coverage like that without a warranty.
Anything else is probably a waste of money. And while they say the warranty doesn't cover abuse, it takes some really obvious abuse (like running over your laptop with a car [happened to me]) before the customer service guys will care. I'll let you guess how my keyboard broke, just like I let them guess.
If you could be told what you can see or read, then it follows that you could be told what to say or think - BoC
After removing a crayon wedged in his brain, Homer finds himself a genius. A miserable genius. He goes to Moe(moonlighting as a surgeon) to replace the crayon.
... ... [taps once more]
Moe: So what do you want here, uh, appendectomy, lipo, or
the sampler. That's very popular.
Homer: [holds up a blue crayon] I want you to stick this crayon
into my brain.
Moe: No problem -- the ol' Crayola oblongata.
Moe: All right, tell me when I hit the sweet spot.
Homer: Deeper, you pusillanimous pilsner pusher!
Moe: All right, all right. [with a small hammer and chisel,
taps the crayon further up Homer's nose]
Homer: De-fense! [woof-woof] De-fense! [woof-woof]
Moe: Eh, that's pretty dumb. But, uh
Homer: Extended warranty? How can I lose?
Moe: Perfect.
-- Simpsons episode "HOMR" BABF22
I worked at Best Buy for 1 year and we did not make commission on PSP's (this was in 1998-99). We were in fact pressured to sell them. It certainly was a way for Best Buy to increase revenues. Except for a few instances I remember, people were generally happy with the warranty service. Sometimes it might take longer to get the item fixed than the customer might like, but in general, I think they (PSP's) are okay. I'm not sure what they cost now, but I remember that a hard drive replacement would pay for the warranty. Of course this is when the largest drive out was about 10 GB and they cost about $250. I seem to remember that we did not have many people bring items back for repair, except for Packard Hell's. OH the HORROR!!
Co-founder and designer at Music Nearby: http://musicnearby.com
I don't buy extended warranties as a rule. On my $500 (Canadian) purchase of a Radeon 9700, the extended warranty would have been something like $60 and it ALREADY COMES WITH A MANUFACTURER'S WARRANTY good for three years.
However, one product I will buy extended warranties on is laptops. However, the price mentioned here is terrible. Dell will sell me a Complete warranty for three years for about $350 Canadian and that DOES cover abuse. Paying more than that (you list $250 U.S.) and not getting covered if I drop my laptop, that's just a scam. I mean, laptops simply don't break often enough to justify that kind of price unless it also covers abuse.
No, I feel actually quite insulted, generally, when offered an extended warranty. Particularly after seeing the complete incompetance of the technicians at Future Shop (the only place here in Canada that routinely offers to sell me the warranties).
Oceania has always been at war with Eastasia.
Overall, they have to collect more than they pay out. If it was a good deal, they wouldn't be selling it, because they'd lose money. Also, the store has to get a good markup on it or they wouldn't push it so hard, so in addition to being a bad deal at wholesale, at retail it must be even worse. You're looking at like 10% in voluntary fees.
They can be hard to collect on. I've had difficulties getting things repaired. In fact, I was told that I was lucky that the (boss's IBM laptop) machine was still under the manufacturer's warranty, because getting it fixed through that was so much easier. This is straight from the extended warranty department at C_ C_. This brings up the next point.
They usually duplicate manufacturer's warranties. IBM provided a good 1 year warranty. You may be told that they're worth more, but make sure (read it) before you sign anything.
At some shops, you can buy them after the sale for some period of time. They want to sell them that badly. That can't be a good sign. That also means that you don't have to decide while the guy is hovering over you.
One clerk pointed out to me that it's a better deal for things that'll be used in a hostile environment. The $500 camcorder that goes to the beach needs it more than my $80 DVD player. That camcorder was actually a gift, and I'm more likely to provide such a thing as a part of a gift.
They could also be good if you're really risking way more than you can afford to lose. A similar example is automotive liability insurance. If you hurt someone with your car, it seems reasonable to do everything you can to be responsible about it.
Buy reputable products, from reputable vendors. I like what one poster said. "If I need the extended warranty so badly, it must be crap. See ya!"
Know your exposure before you buy an extended warranty.
Assembly is the reverse of disassembly.
Electronics Boutique offers extended service agreements on everything. It's basically insurance, since they cover everything except theft.
But you need to ask yourself what's worth the insurance, and what's not. Is it worth another 50$ to have your PS2 replaced with no questions asked for 2 years? How about little GBA game holders? (A pack is 5$, the ESA is 3$).
On some items it really makes sense, on others it doesn't. I'm glad I paid the extra 100$ on my TV, because I get it fixed for free. I bought an ESA on my Xbox, and am happily on #5 (2 motherboard failures, 2 bad DVD rom drives). The failure rates on the first gen consoles from Sony and Microsoft are scary.
--
Internet Explorer (n): Another bug -- that is, a feature that can't be turned off -- in Windows.
I buy Apple's AppleCare Warranty whenever I buy a new Mac. (I bought a new iBook and a PowerMac just two weeks ago, both with extended warranties.) Like many manufacturers, Apple only provides a one-year warranty with their systems -- you've got to pay extra for a two-year extension for a total of three years. ($169 for an iMac, $249 for an iBook or PowerMac, $349 for a PowerBook.) It always seems expensive at the time, but 30 months after the purchase date, when the AC plug gets all wigggly, the video card becomes mysteriously fried, or the hard drive up and dies, it looks like a pretty good deal.
-Waldo Jaquith
I personally like IBM's (ThinkPad) on-site service (warranty). If your laptop's monitor gets fried, a guy from IBM comes to your office and fix it for you right there. Hard drive, keyboard, same thing.
But whether the price you pay for ($1000.00+?) works for you really depends on your circumstances. If you live in a country side (I don't know, Texas?), it can take hours for tech guy to get your house; on the other hand, if you live in a city like SF, NY, they might be working a couple of blocks away from your office and tech guy can come knock your door within 30 minutes after you call them.
Also this type of service depends on what work you do and how much money you are making. If you are one of super star developer/architect and use computers 60 hrs/wk or more and make 100$/hr plus, money is well worth it. On-site service mitigates your loss to, $200.00 - $300.00? What if you have no warranty and you need to order new computer? You'd lose $1000.00? $2000.00? Maybe more.
So insurance is a gamble, right? You bet some money that you're going to get hurt or your stuff will break or your house will burn down, and if you're right you get a big payout. But in traditional economic terms, the odds are against you, because the insurance company chose your premium specifically for that reason. But it can still be reasonable to buy insurance. Here's why:
It all boils down to the fact that the utility of money is not linear. My (hypothetical) millionth dollar is worth less to me than my hundredth. That hundredth dollar is less important than my last dollar.
So paying $10 to elimiate a 1/1500 risk of losing $10,000 doesn't make sense if you have a million bucks (since you can afford to play the odds and accumulate enough samples to make the expected averages show up), but if you have $8,000 it's a whole nother ball game; one 'loss' and you're fucked. The insurance providers have pockets deep enough to play the odds, and as a result it's profitable for them; if it weren't they would raise the premiums until it was. It's economical for them to cover risks you can't afford precisely because they have a fuckload more money than you do. So when you're talking about losing your last dollar, to them it's just another dollar and paying it out to you doesn't hurt them any more than any other dollar.
So what does this mean? Insurance on small items, that you can afford to replace, such as (hopefully) consumer electronics, is probably not worth it. Situations where 'losing' would constitute a larger percentage of your net worth (cars, homes, personal medical fees, liability for hurting other persons) are where insuarance can be quite reasonable, despite what an erroneously linear risk v. reward calculation might suggest.
Basically when considering insurance ask yourself "what happens if I need the insurance and don't have it?" If the answer is something like "I'm out $250" instead of "I'm fucked" you probably don't need the insurance / extended warranty. If it DOES make sense for you to buy the extended warranty on some consumer electronics, that probably means you're buying something you can't really afford, and you should reconsider the original purchase, not pay extra.
Trees can't go dancing
So do them a big favor
Pretend dancing stinks!
Many credit cards will offer buyer protection for upto 5 years. Check out the details on your card since it may be a better than than the extended Warranties.
Painting houses is a dangerous game that can land you up with the damned if you are not careful. A cautionary tale:
There was a painter who was having trouble making ends meet. Almost none of his jobs seemed quite to turn a decent profit. One day, he decided he could lower his costs by adding a little water to the paint to make it go further.
The next day, he put this plan into practise, and added a bit of water to the paint. Instead of using three cans, he used only two, and the job didn't look too bad.
Later that night, he was lying in bed when he suddenly heard a deep booming voice calling his name. Trembling with fear, he answered "Who is it?"
"It is I, the Lord", came the reply. "You have done an evil thing, by cheating your customers with watered-down paint."
"What must I do, Lord?" cried the painter.
And the voice replied: "Repaint, and thin no more."
(Sorry.)