Extended Warranty Purchases Up 10% This Year

Hugh Pickens writes "Consumer Reports says that most of the time, extended service contracts aren't worth the additional dollars. But the Washington Post reports that purchases of extended warranties are up 10 percent over last year, according to the Service Contract Industry Council, a trade group. Consumers 'tend to be more risk-averse and are less willing to absorb the cost of an unexpected product repair or replacement,' says Timothy Meenan, the council's executive director. Mark Kotkin, director of survey research for CR, acknowledges that there are instances when the extended warranty can be worth it. 'We recommend getting one for the Apple computer,' Kotkin says. 'The tech support that comes with the extended warranty is great. Without it, the tech support is skimpy.' Another product where extended warranties may be of use are giant television sets, where few manufacturers will come to your home to make warranty repairs. Extended service contracts for big screen TVs often offer in-home repair, says Meenan, who once shipped a Sony TV to the service center for repair under the manufacturer's warranty. 'They fixed it and brought it back 45 days later.'"

Comments

You get what you pay for

[PizzaAnalogyGuy]

It makes sense really.

If you want better service and better quality, you pay a little more. Those who dont, get the main product a little bit cheaper, but not with the extra services it comes with. You pay more to be a premium customer.

This is best illustrated with a good example; Everyone of us go for a pizza sometimes. Many of us go to where the pizza is cheap, even if you know it's not really the best you can get. But it's good enough. However some of us want to go for the extra mile and spend a few dollars more to get really quality service. In those cases you won't be hearing "we're out of ham" or "sorry, we don't serve barbeque sauce with our pizzas". Pay a little bit extra and you get the best service and best ingredients without hearing they don't have them. And the customer support is a lot better - there's no any angry fat italian cook looking and yelling at you and throwing you out of the pizza place if you don't celebrate his pizza's taste. Instead, there's naked ladies serving you the pizzas, lovely and peaceful italian music and live performance. And everyone smiles and as a result you will be happier than ever, and have enjoyed the best pizza in the world, filled with bacon, ham, pineapple and barbeque sauce.

You get what you pay for.

Re:You get what you pay for

[zoomshorts]

90 percent of extended warranty stuff is pure profit for the manufacturer.
All this means is the consumers are getting stupider.

Re:You get what you pay for

[sopssa]

To add to this, this is how whole insurance industry works..

Re:You get what you pay for

[TheMeuge]

Exactly.

There are people who can't afford to purchase extended warranties for their devices. Therefore, they deserve to have the extended warranties given to them. To do that we will tax the better extended warranties 40%, and will also penalize people who choose not to purchase them.

Re:You get what you pay for

[Hijacked Public]

All of my major appliances came with my house. The previous owner kept receipts so I know they all between 15 and 20 years old. Except for the dryer, which needed a $60 gearbox a couple years ago, they all work fine every day.

My CRT TV went out a couple weeks ago. I bought it when I was in the USMC so it is ~10 years old. The guy who sold me its replacement insisted I needed his extended warranty. Lots of these TVs break, he said. All made in China. He'd give me the warranty at half price.

To me, that is an insane pitch. I just agreed to give you $1000 for a TV that you now tell me will probably break somewhere between the 1 year warranty that comes with it and the 3 year you are offering. I'm coming off a TV that lasted 10 years. I heard this same pitch while helping a friend buy a laptop at Fry's. Heard someone getting it from a washing machine salesman at Lowe's.

What these people are really selling is fear. And right now people are prone to being afraid, so the pitch works well. Get the idea out there that modern electronics are junk, not just one brand but all of them so there's really nothing you can do about it, then it is easier to sell people warranties they'll probably never need to use.

Re:You get what you pay for

[cptdondo]

I bought a $320 printer recently. The seller offered an extended warranty for $80. This warranty covered years 2 and 3; it kicks in only after the manufacturer's warranty expires.

So do the math. 320/80 = 4; the warranty costs me 25% of the replacement cost of the product. Or, I'm betting at 1:4 odds that the machine will become useless sometime between 2 and 3 years old.

Now this is a name-brand product, aimed at office workgroups with a duty cycle of a thousand or or so pages per month. My use will be perhaps a thousand pages a year. The printer sits in a hope office, in an area with few electrical storms, in a controlled environment.

I'm not willing to take a 1:4 bet. At a guess, 75% of the price of the warranty goes to the retailer, with perhaps 25% going to the warranty itself.

I'd take the bet at, say, $20.

I bought an R/C boat for my son at Toys-R-Us; it cost $50 and they offered a full replacement, no questions asked warranty for one year for $3. I bought it. 50/3 = 17; chances are pretty good that my son will trash the boat in one year. (Actually, he didn't; I did. But we got it replaced.)

So it's a question of which side of the bet you are willing to take.

Re:You get what you pay for

[Qzukk]

I think that it's not right for one person to have a gold plated plan

"ZOMG COMMUNISM" debate aside, my problem with this specific point is that plans are expensive based on your medical history, not because it's "gold plated" or some BS like that. Someone with a so-called "cadillac" health plan is paying big bucks due to the fact that they have cancer or diabetes or MS or maybe they're just 55 years old and the insurance company is hoping to get rid of them before they have a heart attack or a stroke.

Re:You get what you pay for

[TheMeuge]

All the executives at my company get a plan that is double mine in cost.

I have no problem with that.

For example, 2 grand annual physicals that check *everything* as opposed to our $300 physicals that test a lot of things.

But you just said they pay more for these plans? They may also drive cars that cost $200'000 as opposed to $30'000. Should we punish them for that too?

However, I share jefferson's view of many mildly wealthy people over the current view of 1% of the population having most of the wealth and a majority of the income.

What's "mildly wealthy"? The number corresponding to that definition has been dropping like a rock, to the point where a family making $200k per year is now "rich". Seriously? It's just greed and envy, and not only have we stigmatized wealth, we've now defined is as "anyone who has more than me". As someone who is intimately familiar with that psychology I can tell you that we're a few inches away from a Bolshevik party.

I think that much concentration is *bad* for our country's political and judicial processes and I'm fine with raising taxes to 50 to 70% on income over a dozen million a year.

As recent legislative efforts have shown, that's not what's happening, and rather taxes are being raised across the board on families earning $150k or more. Considering that the truly wealthy have a ...wealth... of resources that allow them to minimize their tax burden, it is easy to see that this is only going to hurt the middle and upper middle class.

Specifically, our current Democratic administration will continue the efforts of the previous Republican administration in eliminating not just the upper middle class, but the very concept of being able to earn wealth through work... not only through taxation, but also through eliminating the concept of high-paying salaried positions (such as doctors).

Not worth the money?

[Max Romantschuk]

If I buy a device and it doesn't break, is the extended warranty useless?

I don't think so. The whole point is that _if_ I have a bad device I can get it repaired. Peace of mind has value too.

It's not like my home insurance is useless just because no one has burglarized us and we haven't had any fires...

Re:Not worth the money?

[MrMr]

I never accept those extended offers; If you have a bad device and it breaks within the reasonable period that you may expect it to work you don't need the extended warranty.
If you expect to beat the insurance company at a game they set up themselves you might be better off gambling with the insurance premium in a casino.

Re:Not worth the money?

[l2718]

Like all other kinds of insurance, the only question is whether you have the capital to pay for the risk. Insurance is a simple transaction, in which you pay someone else to provide the capital necessary to cover you in case of some bad event taking place. It's worth it to you since you don't need to have this available capital.

The expected direct monetary cost of insurance (premium minus expected payout) has to be negative, or the insurance company won't be making money. In other words, you must pay them more than the product of the probability of the outcome times the damage. Insurance nevertheless has positive value since this comparison (permium vs payout) only makes sense to someone who has the resources to make the payout.

Thus it's a good idea to insure your house -- if it burned down you probably don't have the money to buy yourself a new one, so instead you pay the insurance company to have money to buy you a new house. However, buying warranty for most electronics is a waste -- why not act as your own insurer, cutting the middleman and saving on the premium? People who buying electronics so expensive they cannot cannot afford to pay to fix or replace should consider insurance -- but precisely because insurance only makes sense for big-ticket items, the effect of an economic downturn and concern about future finances should be to reduce purchases, not to make the purchases and then add insurance.

Re:Not worth the money?

[Sockatume]

In some parts of the world, consumer protection laws would ensure you get a bad device repaired regardless, on either the store or the manufacturer's dime. This includes several parts of the US that have enacted "lemon laws". Lemme put it another way, why would you buy a product that's so unreliable that the shop's desperate to get you to buy a warranty on it? Find someone reliable and buy their product instead. If you're willing to put up with shoddy products as a matter of course, then they're just going to keep putting out self-destructing garbage.

Re:Not worth the money?

[pmontra]

Time also plays a role in the deal: I can have a technician repairing my pc in a day or go out and buy a new one and spend hours reinstalling everything. The cost of my time could be on par with the cost of the hardware.

Re:Not worth the money?

[addsalt]

It's a statistics and probability problem. If a device breaks, what would be the cost to have it repaired without the warranty? and what are the probabilities for the device to break between the end of base warranty and the end of extended warranty?

You don't even need to actually work out the math - it's been done for you (by the people offering the extended warranties).

Re:Not worth the money?

[j00r0m4nc3r]

Unless you make a habit of replacing all of your devices every year, the extended warranty is often useful

This is a sucker's game and you've played it. It's only valuable if you buy it for a device that fails. The only problem is you cannot predetermine which device will fail, so you end up buying it for all your devices. Let's say you buy 10 devices each for $1000 (just to keep the math simple), and you get the extended warranty for all of them, and you pay a 20% premium for it. You've basically paid and extra $2000, enough to completely replace 2 devices at the same price (but remember prices go down over the next few years so you actually get MORE device for the money in a couple years). The chances of more than one of those devices failing is extremely slim. Modern electronics are extremely reliable (and you usually pre-determine reliability by reading reviews to eliminate the really unreliable brands). I don't have spreadsheets and shit with the numbers, but you can be sure the insurance company does, and would not want you to see it. You're basically gambling, but you're doing it blind, without any knowledge of the odds. For all you know the odds could be 1billion:1 against you. The insurance company knows the odds, and you can be certain they don't work in your favor. You are much better off taking that $2000 and investing it, or even going to Vegas where you know exactly what your odds are.

Good enough

[slasho81]

Computers are getting to the point of "good enough" for the current technological cycle. This means people won't be shelling out hundreds of dollars every three years for a new computer when their old computer is good enough and in good shape thanks to an extended warranty.

Applecare is worth it

[Anonymous Coward]

I've purchased extended warranties on prefab PCs before, from BestBuy, CompUSA, and Frys over the years and sort of felt cheated at the end. Not because the machines didn't break, but because I violated at least 10 stipulations in the warranty contract by year 1. Things like breaking the seal and popping in all kinds of hardware inside of it; replacing original parts with better parts, wiping the HDD (along with backups) and dual booting it, etc.

I could never take the frankenPC to the store and ask for any warranty. The nature of the scam in these retarded contracts is that they require you keep all kinds of things intact, plus have the warranty papers, the original sales receipt, and the same OS it shipped with.

With Apple you have the serial stamped on the hardware and inside the magic ROM thingie. Take it to the store and they'll punch it in and make the necessary repairs. And they try to fuck you over like the BestBuys of the world do, or ask you to "restore from Tiger" when Snow Leopard is the new cool thing.

Re:iMacs, I will not go without extended on mine

[Rotting]

The problem I have with buying an extended warranty on a mac is that they are already charging a premium for the hardware. If they expect me to pay that then I expect them to deliver a product that is engineered to last. We all know they are using fairly standard pc hardware now though so that expectation is a little unreasonable. I suppose it's for this reason that I have a problem with being expected to pay an additional $200 so my overpriced hardware is covered should something go wrong... or maybe I'm just cheap.

Extended warranties are mostly profit

[Anonymous Coward]

I worked on a data migration project for a major insurance company. As part of that project one of the Business Analysts was asked to give us an over view of the business model represented in the systems we were handling. He started his talk by stating that their most profitable line was the type of insurance which people are asked to take out when they make a purchase. He observed that the customer was rarely able to claim because of the way in which the warranty was worded, and that often the retailer made more money from the warranty than they did from sale of the product. We all laughed. Ha ha.

Since then I have not taken out a warranty of any kind on any product. If it breaks then so what. I have saved more over the years than I might loose from the replacement of repair cost of something breaking.

Its purchasing a quality drop option...

[vlm]

Consumers 'tend to be more risk-averse and are less willing to absorb the cost of an unexpected product repair or replacement,' says Timothy Meenan, the council's executive director.

Sounds pretty bogus to me. My logic in buying an extended warranty is its an option on low quality. Has the quality of the product dropped enough to now make the warranty a good deal? In the past, sure, it was a ripoff, but now the papers are full of stories about junk from china, inedible food, lead paint on everything, etc. And everyone has the experience of buying something from China-Mart that instantly falls apart or is simply unsuitable for any purpose.

Would I buy an extended warranty on a Milwaukee Tools Inc genuine made in America Sawzall, from perhaps the 1980s? No, that would have been a waste, that saw will run until my great grandkids use it. Note, Milw Tool website declares they're now a "globalized" company so I would assume (perhaps incorrectly) that they only ship Chinese trash now, I'm referring to the products from the good old days. Would I buy an extended warranty on a generic sun-moon-star Inc reciprocating saw from china that doesn't even have instructions in English nor a genuine UL listing? Heck Yeah, that thing probably won't even last thru one complete job!

So the real focus of the story isn't some "adsorbing cost" BS, it is a story about downscaling quality because of lack of spending money. Store brand, or generic, instead of the real deal. And even the real deal is all outsourced to the point of uselessness.