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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.
It depends- for example, my wife bought me a Nook Color a couple years ago from Staples, and bought the protection plan. About 3 months ago, it wouldn't start. I called Staples and within 2 hours my wife had an email from Staples with a electronic gift certificate for the original purchase price. I replaced my Nook Color running CM10 with a Google Nexus. I bought another protection plan for the Nexus based on that experience.
There are other products I don't purchase them for (such as video games or toys for my kids), because the failure rate is very low, and I'm not into throwing away money.
I don't have hardwood floors. I have tile. I'm safe.
It sounds like the summary is mixing and matching two different things, which are insurance and warranty. Generally warranties don't cover "drops or spills". Insurance is usually better, because once you're done with the device, you stop paying the insurance on it. With extended warranty, you have to pay up-front for the service, with the obvious assumption that you're going to own and use the device (and not lose it, upgrade to something else, sell it, give it away, or have it stolen) for at least a certain amount of time to make it pay off.
Better known as 318230.
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
If that many people break their devices, then the insurance premiums must be commensurately high, or they will not pay out. There's no way around that. An insurance salesman telling you that lots of accidents happen but that premiums are low is lying about something.
For all intensive purposes, "whom" is no longer a word. That begs the question, "who cares"?
I worked with a guy whose sister and brother-in-law worked for Mastercare (the warranty arm of Dixons (a "tech" shop like Best Buy)). They only extended warranties that they or anyone they worked with took were for washing machines. They said everything else wasn't worth it.
The question is unanswerable without knowing the cost, and the terms, and what it covers.
A local electronics store has an extended warranty program where you pay X$ for the extended warranty, and if you don't use it, when the warranty is finished, you get a gift certificate for X$ to use, on any purchase over 2 x X$.
So in 2005 I bought a $5000 DLP TV, and paid ~$500 for 5 year extended warranty, which I didn't end up using. In 2010 I bought a new LED backlit LCD for $2200, and used the $500 gift certificate.
Admittedly there is a bit a claim process to go through (much like MIR processes -- fill out an online form, warranty plan number, name, address, etc..), and you only have 6 months or a year or something -- it wasn't unreasonably sort, but there was a limit, after the extended warranty expires in which to make the claim,.
I felt it was really a tremendous value.
I gave the old TV to my parents and it lasted another 3 years before the color wheel motor finally died.
Best Buy and HP are on my I'll-take-my-chances list. When I've bought warranties from either, they've failed to honor them in more cases than not. HP spare parts are also sufficiently plentiful on eBay and I've gotten to the point where it's worth my time to just swap the parts out myself when something goes wrong. Admittedly this is atypical for the average consumer (especially when it comes to iPads and similar), but it's true at least for me.
Cell Phones? Asurion. Always. I've never once had an issue with them; I pay my deductible and I've got a phone on my desk at work the next day, every time. THEY are worth it. Yes I know that this is insurance, not a warranty per say, but ultimately it boils down to semantics insofaras Asurion gets paid monthly through my cell carrier while an extended warranty is a one-time payout.
Origin PC is another company whose warranties are worth it. Perfect support, perfect track record with replacement parts, and they've worked with me every time, without exception. I'll by warranties from them any day.
Tablets? Well, mine is a Toshiba, a company who's also been historically atrocious with warranty related matters in my experience, plus the tablet itself is sluggish and moderate-at-best quality so the device itself doesn't justify it for me personally.
This does raise a tangentially interesting business question though: we all know that businesses make a mint off the warranties and thus push them in order to bump the profit margin on the sale. I get that, and I'm okay with it. The problem then becomes the fact that it gives incentive for device prices to remain artificially high. If the device is higher priced, companies make more money. It justifies warranty purchases (also at higher prices) in many minds due to how expensive the device is. Now in the case of Apple specifically I'll give them a certain level of a pass on this because they are well known for honoring their warranties very consistently. Everyone else...not so much.
Thus, My original premise stands: certain companies make it worth it because there's actual peace-of-mind involved. I don't worry about my laptop breaking; I know Origin has my back without question. I don't worry about my screen cracking, Asurion will see to it that I can make calls tomorrow by noon. My Toshiba tablet? I have peace of mind knowing I'm screwed if the tablet breaks, as opposed to knowing I'm screwed if the tablet breaks AND I have a hundred bucks in Toshiba's hands whose only redeeming factor is having some underpaid foreign support representative informing me I'm screwed and my warranty doesn't cover whatever-happened-to-my-tablet.
The people who want to buy extended warranties that cover accidental damage tend to have accidental damage more often than those that don't. We call this moral hazard.
What that means? Being careful with your stuff will pay off disproportionately compared to the cost of this insurance.
Also, given that most residential insurance policies have deductibles of $500 or $1,000, I don't think the loss of a few-hundred-dollar smartphone is exactly a catastrophic loss compared to having someone steal your car or having a kitchen fire.
FWIW, I got a ThinkPad in 2001, got the 3-year extended warranty. Two and a half years in, I bought another two year extension. I got some repairs under it. It was pretty cost-effective.
I still have that machine. Heck, I've used it in the last year because I had Windows stuff that needed XP.
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Did you ever take them up on it? because I can tell you from my experiences with future shop (same company as best buy) that their extended warranty wasn't worth the paper it was written on. I had a camera die on me within the extended warranty period. no physical damage at all, not caused by a drop or anything else, it simply decided to throw an error message one day and wouldn't boot. When I took the camera back in to the store they told me they'd have to send it away and would let me know in a couple of weeks if it was eligible for the warranty. A few weeks later I was told my warranty claim had been denied due to "abuse". After escalating it through several levels of management and refusing to leave the store until it was addressed, they agreed to replace the camera, but not with an equivalent model, but only with the cheapest piece of garbage they had on their shelf at the time. In the end I managed to get half the cost of an equivalent camera to the one that had broken under warranty. And they had the audacity to try to sell me another extended warranty on the new camera!
And that was one of my better extended warranty experiences, I had one on a used car that was denied due to "pre-existing conditions" (I thought that's exactly what warranties were supposed to cover!) I never did get anywhere on that one. I tried to take my roofer up on his installation warranty after discovering that he had caused a leak in the roof, only to find out that he was out of business, and his parent company told me the warranty was only with the individual roofer, not the company...
I will NEVER under any circumstances pay an extra cent to buy an extended warranty on any product. They are fraud, plain and simple.
It depends on how easy it is to get it fixed. For example, Dell's laptop warranty is awesome. They come out to your house withing like 48 hours and fix it on the spot. That's a lot different from shipping your laptop off somewhere and getting it back in two weeks. On the other hand, I am not willing to buy an extended warranty on most tablets because it is easier to just buy a new one when it breaks. Cell phones are similar. You often pay $50 to get the same kind of phone you had before. But that phone is probably free now (if you extend your contract.)
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.
Yeah, they were trying to screw you. A timing belt is a "consumable" the same way a clutch plate is a "consumable." Sure, they'll need replacement eventually, but any part not scheduled for replacement within the warranty term should not be exempt from the warranty.
There are parts like hard drives, batteries, and power adapters that die faster than the warranty. My old MacBook Pro killed six hard drives over four years, mostly while AppleCare still applied. I recall my previous MacBook killing numerous drives as well. My almost two year old MacBook Air has killed the cable on 3 power supplies. I've had my top case replaced on all three machines as well.
If you use your equipment heavily, then you should expect that ordinary wear destroys some components before the warranty expires.
The Christian religion has been and still is the principal enemy of moral progress in the world. -- Bertrand Russell
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.
I used it for my Xbox 360 twice. And on the second occasion I received a gift card for the difference of the original purchase. Best part was, new xbox and controller both times, WITH upgraded HDD's and whatever pack-ins were included at the time. I walked in, grabbed a new xbox, and took it to the exchange counter along with my old one. It was pretty hassle-free, aside from the ridiculously stupid wait times. They need to staff customer service better. Of course, I bought my Xbox going in knowing that it was likely to break, so it wasn't a big gamble to buy the extended warranty. And I imagine they were so used to seeing this by that point that they didn't bother to try and debate with someone bringing in a broken Xbox. That said, my brother had a similar experience with his original xbox and best buy as well. We've also gotten an enormous amount of use out of several other Warranties from retailers for various appliances.
The OP has it wrong. Extended warranties last 3 years, during the lowest chance of failure time, electronic devices will generally die in the first few months (manufacturer warranty) or after 3 years (after extended warranty). Add to this that extended warranties have convoluted terms that attempt to stop people getting warranty repairs.
In Australia, extended warranties are useless due to Australian Consumer Law, which protects consumers by making manufacturers repair goods if they fail before a reasonable time. Essentially, if there's an extended warranty available, the item should last as long a the extended warranty.
Because they base their judgement on the amount paid out versus the amount paid in. And their figures year ago on auto "extended warranties" was ~30% of what people paid in got returned in the form of expenses to repair, 70% went to selling, overhead, administration, etc.
Why does every clerk selling you something try and sell the warranty/insurance? Because all the management get bonuses, the selling company gets something, the insurer gets something, etc. That money isn't returned to the consumer in benefits.
I'm 70, have made it a habit of insuring to the hilt everything I can't afford to pay for (house, auto, liability, umbrella rider, etc). For all products I decline coverage because I can afford (with some pain) to pay for them. I'm way way ahead.
Extended warranties are like a casino, a very few win, some break even and the average loses big. Except casinos pay out at much higher rates...some more than 95%.
Before you buy, do some research on the latest profit and loss statement from the insurer. Oh, and insurers often do go bust only to reform the next day under a new name, same management.
Then lodge a complaint with the ACCC, you may be surprised at the response. (Also helps to send a copy of the complaint to the manufacturer)
You may also get more joy dealing with your reseller as well - as the sales contract is with them, and they should be the ones making it right, and then it will be up to them to claim back from the manufacturer.
http://www.consumerlaw.gov.au/content/the_acl/downloads/consumer_guarantees_guide.pdf has more information and is a very easy to read guide
http://www.consumerlaw.gov.au/content/Content.aspx?doc=consumers_ACL.htm has contact information and advice on where to file a complaint
I've found printing out the guide and taking the relevant section in with you when you visit a retailer has worked every time. It got my fridge fixed out of warranty, and my PS3 replaced when the DVD drive died about 2 weeks after the warranty expired.
Most extended warranties these days take depreciation into account.
My sister opened a computer store in Hawaii. She sells C shells by the seashore.
It really depends on the company and the product in question. It'd be pointless to buy an extended warranty on a $130 printer at Staples, but it'd be a very good idea to get the AppleCare for most Apple products, since they are extremely good about dealing with problems (my laptop developed a severe series of blemishes where the coating on the unibody just completely wore away after the initial coverage, but within the Apple Care coverage -- I sent them photos and had me stop in at the nearest Apple Store for a brand new replacement with absolutely no hassle).
I'd also get an extended warranty for an expensive television. Maybe not the warranty the store is trying to sell you, but you can do your research and find various extended warranty companies (I've found SquareTrade to be fine enough). If you spend $4,000 on a real project display and you can get a three year extended warranty for $200 which includes a free bulb replacement (easily $130+), then that's a pretty good deal.
Most recently, I bought a $400 XBox 360 that developed an issue with reading discs about 80% of the time and made a concerning grinding noise as it spun the disc, trying to read them. Because Microsoft's warranties are so stupidly fucking short, I had to rely on my SquareTrade warranty (which I think was $30 or so?). I filed a claim online, they sent me a customized box and packing materials just for the console and I had it shipped, fixed, and returned to my home in about ten days. That was well fucking worth the $30.
I would generally say "extended warranties are a scam", but as with many things, there are exceptions and you have to know when and where those are. A good rule of thumb is probably to just never buy the extended warranty they're pushing on you at the showroom for *anything*. Period. That's just an upsell to pad their pockets and nothing more. Probably also don't bother getting a warranty on fairly cheap things - the exception being something like an XBox 360 which is not *almost* cheap, but also known to have serious failure rates. I saw it as an investment with an absolute eventual return - and it paid off.
I don't understand why people don't see how simple this is The extended warranty companies are making a profit. Therefore, on average, they will make more money than they pay out to you. Therefore, if you can cover the capitol cost of the device breaking, you will, on average, come out up by not having an extended warranty.
The problem with these "reasonable lifetime" laws (we have them in the Netherlands too; same issues) is getting an agreement on what is reasonable.
Manufacturers will state the reasonable lifetime is just about the same as the waranty period.
Courts will typically add on some years, but you have to go to court in order to get the manufacturer to acknowledge that, which in most cases costs a lot more money than the value of the product.
As a result, the only way to enforce these laws is either using class action suits (unlikely unless a particular failure is universal for all customers) or the repair is costly enough to justify spending money on lawyers.
Some consumer rights organisations may have some more leverage, but only in individual cases so no structural changes in the way this is handled.
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