Are Extended Warranties Worth It?

I remember shopping for a digital camera at Best Buy several years ago. This was back in the day when people still bought digital cameras.

A salesperson explained to me the features and benefits of two comparable models.  In doing so, he pointed out the superior quality of one of the cameras, mentioning that he owned one very similar, and that it had performed perfectly for him.

According to his logic, I could expect plenty of trouble-free use from the same brand of camera.

After a few minutes spent considering my options, I went with his recommendation and decided to buy the model he had spoken so highly of.  He led me to the counter to finalize my purchase, where another associate took over the transaction.

The clerk at the counter was quick to mention that there was extended warranty available, and handed me a pamphlet.  For $120, I could add an additional 2 years of warranty beyond the 1 year provided by the manufacturer.  If memory serves me correctly, the price of the camera was around $280.  As such, purchasing the extended warranty would increase the total cost of the camera by almost 40%!

I politely declined the additional coverage, which only prompted the clerk to ratchet up his sales pitch a couple of notches.

NOTHING BUT PROBLEMS

He mentioned that they had encountered several problems with the type of camera I was buying.  It was a small camera, with even smaller parts, yada yada yada.  Because of this, any repair would start at $200, and only go up from there.

And boy, had there been issues.

The poor guy made it sound like he was pulling overtime just to deal with returns of defective digital cameras.  I almost felt bad for him.

Within minutes, the high quality camera I was buying, the same one that came with a ringing personal endorsement, had somehow become a piece of crap.

Thankfully I knew better, and resisted the poorly disguised attempt to play on my fears.

I’m sure most people have had similar experiences.

Personally, I get a kick out of sales people who seem to believe so fiercely in the product they’re selling, until it comes time to present the available money grab extended warranty.  Suddenly, a ‘great investment’ becomes a dicey proposition, at best.

EXTENDED WARRANTIES – NOT WORTH IT

Simply put, extended warranties are not worth the cost.  I’ll go a step further and say that in many cases, buying new is not your best option.  In fact, with some careful research, you are usually better off buying big ticket items used.  At the very least, it’s an option you should explore.

If you are buying new, don’t waste your money on extended warranties.

Here are some facts to consider:

• It’s been estimated that extended warranties deliver over 60% profit margin for retailers.
• A refrigerator usually carries a profit margin of 15 to 20%. An extended warranty can increase that margin as much as 300%.
• Extended warranties once accounted for 80% of all of Best Buy’s profits in the US.
• Most people who purchase the extended warranty on a vehicle NEVER have to use it.
• Extended warranties tend to be full of loopholes that make it easy for retailers to wriggle their way out of paying for coverage.

Clearly, extended warranties are a boon for retailers.  It’s no wonder they make some sales people so aggressive.

PEACE OF MIND, WITHOUT BREAKING THE BANK

Instead of opting for extended warranty, follow these tips to provide you with some peace of mind, without breaking the bank:

1. Purchase quality products with a good predicted reliability.  This approach will pay for itself over the long term.  I recommend researching Consumer Reports for thorough and unbiased reviews of most consumer products, from new vehicles to flat screen TV’s.
2. Rather than spending on extended warranty, set aside the equivalent amount of money in an account for future repairs, if needed.  Chances are you won’t.
3. Some credit cards come with extended purchase and warranty protection as a feature, adding the benefit of additional warranty to many products purchased with the card. If you get one of these cards, make sure you read the fine print so that you understand what exactly is covered.
4. Aim to purchase the base models of most products.  When you buy a vehicle or an appliance with all the bells and whistles, more things can go wrong, resulting in costly repairs.  Save money, and stick with the basics.
5. Wherever you can, buy used. Did I mention that previously?

Chances are, you will rarely need to use an extended warranty.

IF IT BREAKS

If you happen to buy a product that needs to be repaired or replaced prematurely, deal with it and move on.  In the meantime, think of the hundreds, or even thousands of dollars you’ve saved by resisting what is nothing more than a retail cash grab.

The other day, I asked my wife if she could recall any household item we’ve owned over the years that kicked the bucket prematurely.  In other words, was there a time that we might have benefitted from purchasing an extended warranty.

All she could come up with was a $25 coffee maker and a $100 vacuum cleaner.  I doubt that extended warranty was available on either one.

As for the digital camera I played Russian Roulette with so many years ago?

We had it for about 5 years until I gave it to my Mom, who was looking for a small camera. I messaged earlier to ask if she still had it, and if it still worked.  She said she did, and that aside from a dead battery, it appeared to be working fine. Imagine that, twelve years later! ; )

QUESTIONS

Have you ever purchased extended warranty?   

Have you ever benefited from buying an extended warranty?  

If so, I’d love to hear about it.  Please feel free to comment!