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Is Buying an Extended Warranty Ever a Good Idea?
waderoush writes "Consumer Reports calls extended warranties 'money down the drain,' and as a tech journalist and owner of myriad gadgets — none of which have ever conked out or cracked up during the original warranty period — that was always my attitude too. But when I met recently with Steve Abernethy, CEO of San Francisco-based warranty provider SquareTrade, I tried to keep an open mind, and I came away thinking that the industry might be changing. In a nutshell, Abernethy says he's aware of the extended-warranty industry's dreadful reputation, but he says SquareTrade is working to salvage it through a combination of lower prices, broader coverage, and better service. On top of that, he made some persuasive points – which don't seem to figure into Consumer Reports' argument – about the way the 'risk vs. severity' math has changed since the beginning of the smartphone and tablet era. One-third of smartphone owners will lose their devices to drops or spills within the first three years of purchase, the company's data shows. If you belong to certain categories — like people in big households, or motorcycle owners, or homeowners with hardwood floors — your risk is even higher. So, in the end, the decision about buying an extended warranty boils down to whether you think you can defy the odds, and whether you can afford to buy a new device at full price if you're one of the unlucky ones."
This is a problematic piece because it confuses an extended warranty and accident protection/insurance. Most extended warranties do not include accident protection, and that option tends to cost extra and require the base extended warranty, which is the problematic part. If FourSquare wants to offer cheaper, better extended warranties paired with accident protection, more power to them, but that's a very different thing than an extended warranty alone.
No.
When they sell you an extended warranty, they're doing it to make money. They have a much broader base to analyze, and they're very good at calculating how much to charge vs. how much they'll have to pay out, to end up with a profit.
It's the same with all insurance. However, unlike life, or health, or car insurance, where there's a low, but finite risk of being out a huge amount without insurance, with product warranties you're out no more that what you've already paid.
So, long term, no, they're not a good deal. Put the same money in the bank and you'll be ahead on average. Sure, there's risk you can still end up worse off, but not catastrophically.
"National Security is the chief cause of national insecurity." - Celine's First Law
It is a transfer of risk: You pay a company to assume the risk of a device failing during normal operation. As with any insurance, it is limited in what it covers, and it is more limited than an accidental damage plan.
As to if they are worth it, well it all depends on your situation. Largely it is if you can afford to replace the device in the event it fails. Insurance is rarely "worth it" in the overall sense. I mean obviously insurance companies have to take in more money, on average, they they pay out or they won't exist. So it comes down to the individual loss: You insure things you can't afford to pay for.
So in terms of an extended warranty, well if accidental damage is you concern then you'll need something additional. It would be for a case where you have an expensive device that you really can't afford to replace, and do not wish to do without.
They're not warranties. They don't warrant anything at all. They're just insurance. Once you get that clear, it's a straight choice on the basis of cost vs benefit. A real warranty penalises the manufacturer for shoddy goods or inadequate service by making them make good the deficit. That is not the case here.