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

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?

[beuges]

Except that the standard warranty generally doesn't last as long as you would reasonably expect the product to work. Notebook computers usually come with a standard 1 year warranty, but I would reasonably expect a notebook to continue working for at least 3 years. My personal notebook is well over 2 years old and still works fine, however, thanks to the extended warranty that I purchased, I got a new screen yesterday because of a column of blue pixels that suddenly showed up last week.

Unless you make a habit of replacing all of your devices every year, the extended warranty is often useful, depending on the device. I use my notebook every day, all day, and the extended warranty was worth the peace of mind knowing that I would only need to replace it after a minimum of 3 years - it's insured against theft and accidental damage, and the extended warranty covers device faults and failures. Without it, I'd probably have had to buy a new notebook in the next few weeks/months, depending on how annoying the screen fault became.

Re:Not worth the money?

[InterGuru]

Most credit cards ( at least in the USA ) will double the manufacturer's warranty at no cost for items you buy with the card. That extends a one year warranty to two years.

The card provider is doing it as a free add-on. This shows how little the warranty really costs the provider.

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.

Re:You get what you pay for

[sopssa]

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

By some countries' laws, they're useless

[cerberusss]

By some countries' laws, these extended warranties are mostly useless. Under Dutch law, a product is expected to work for a couple of years. Customers who return with a broken device after two years are still entitled to a working device. A negotiation should take place between the seller and the buyer, and one outcome could be a repair, for which the costs cannot be too high.

Some chains like MediaMarkt have put this negotiation down to a few rules and customers are protected by these. On the other hand, international chains like Apple have been found guilty for refusing Dutch customers help with their broken device just outside the warranty.

A lot of people don't realise...

[GrubLord]

... that those Gold and Platinum credit cards they're collecting 'reward points' on also oftentimes provide extended warranty on purchases made with said credit card.

Before you shell out for an extra year or two of warranty, try reading through the terms and conditions of your favourite rewards card. Chances are, you can get that extra year or so of peace of mind for free.

Re:You get what you pay for

[Cornwallis]

Which is exactly why we need Extended Warranty Reform. Hopefully, Dear Leader will make this his next target.

Why extended warranties are useless

[Cereal Box]

It's not usually explained in articles like these, but extended warranties are useless because the product reliability tends to follow a "bathtub model". If you chart the number of expected repairs a product (y-axis) against time (x-axis), you'll see a large number of them initially (i.e., initial product failure) which quickly slopes downward towards zero and plateaus for several years. Then, many years out, you'll see that number quickly ramp up again (i.e., end of life product failure). Extended warranties aren't for that period of time, they're for the period of time when product reliability is highest.

Re:You get what you pay for

[MrNaz]

I own a mobile phone store in Australia. Extended warranty and insurance are two products that the mobile phone provider is heavily pushing, offering commissions and minimum targets.

I can also say that extended warranty and insurance is essentially free money for the providers. If an electronic item does not break within 12 months on its own, the chances of a warranty-covered issue arising in the 12-24 month or later period is so low that it can be ignored. I don't think I've *ever* serviced a customer with an error that was not user-caused (i.e., outside warranty coverage) after the 12 month mark.

Extended warranty is nothing but an unmitigated rip off.

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.

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.