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Extended Warranty Purchases Up 10% This Year

Posted by kdawson on from the one-born-every-minute-and-sometimes-several dept.

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.'"

7 of 253 comments (clear)

  1. Not worth the money? by Max+Romantschuk · · Score: 5, Insightful

    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...

    --
    .: Max Romantschuk :: http://max.romantschuk.fi/
    1. Re:Not worth the money? by MrMr · · Score: 5, Insightful

      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.

    2. Re:Not worth the money? by l2718 · · Score: 5, Insightful

      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.

    3. Re:Not worth the money? by j00r0m4nc3r · · Score: 5, Insightful

      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.

  2. A lot of people don't realise... by GrubLord · · Score: 5, Informative

    ... 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.

  3. Why extended warranties are useless by Cereal+Box · · Score: 5, Informative

    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.

  4. Re:iMacs, I will not go without extended on mine by Rotting · · Score: 5, Insightful

    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.