Is the Extended Warranty Worth It?

“Ok sir, would you like to protect your brand new computer with our top-of-the-line guaranteed extended warranty plan?”

“Um… Ah… what is that exactly, does it cost me much?”

“It doesn’t cost much at all sir, here is a pamphlet that illustrates the 4 different levels of protection that you can enjoy. For only $27.99 per year you can guarantee yourself our top level of protection”

“What is all of this small print at the bottom?”

“Oh that’s just detailing what the plan all covers.”

“I thought you said it covered everything?”

“Our top tier of protection covers pretty much anything sir.”

If you have purchased a product from a place like Future Shop or a vehicle from pretty much any major dealer, you have likely had a conversation like this. What you are being sold using catchy terms like “layers of protection” is an extended warranty. These products differ widely in what they cover, but the basic idea is that for a yearly fee, the place where you are buying the product will fix your purchase if it breaks or malfunctions. As with most financial products, the devil in the details, but the vast majority of the time, you should politely decline the offer.

Pros and Cons of Extended Warranties

Before we get into to discussing the specific pros and cons of extended warranties, you should know exactly why they are always pushed on you so hard – they are huge money-makers and often reward a low-paid employee with a fat commission. This gives the sales team a huge incentive to push the product. In fact, one of my buddies who worked at Staples told me that they actually make very little on a laptop computer if you simply go in and purchase one when it is on sale. They make their profit on the programs they sell with it, “setting it up” for you, and especially on the extended warranties. In other words, the classic upsell.

The extended warranty that these companies sell is in addition to the manufacturer’s warranty that is on all new vehicles (and several used ones), and almost all electronics. These warranties vary in what they actually protect, but make sure to read the fine print and get a straight answer from someone before signing on any dotted lines. I have heard about several instances where someone believes that their warranty is valid for a certain repair, only to find out that it is one of seven exclusions listed at the bottom of the pamphlet/agreement in size 4 italics. Not all extended warranties are created equal, and some actually may present decent value for people that couldn’t afford to replace their investment in a new TV or new laptop. There is little doubt however, that over a long enough time frame you will always win out by declining extended warranties.

Do You Remember Buying Warranty Three Years After The Fact?

The reason for this certainty is the fact that retailers make such a huge profit on the product. Think about it, would those businesses really be pushing products so hard if they even stood a 10% chance of losing money? Even when extended warranties are honored, the retailer can often fix the problem cheaply, and quickly (relative to if you paid for the repair) so it’s a great gamble for them. My guess is that plenty of people (a majority even?) that purchase the extended warranty throw it in a box with their receipts somewhere when they get home, and are very unlikely to ever redeem it simply because three years later you will forget you purchased the extended warranty on that laptop of yours.

Before you commit to any extended warranties make sure and check out the manufacturer’s warranty on the product you are buying. There is often a lot of overlap and while the manufacturer’s warrant is usually for a shorter time frame, it is also often more comprehensive than the one the retailer is offering. Finally, I recommend looking into a credit card that offers a decent warranty plan on all of your purchases. There are several options out there, here is our recommendation. If you already have a credit card warranty, and a manufacturer warranty, you need to seriously evaluate if paying 25%+ of the total value of the product is worth it (especially since vehicle and electronics specifically decline in value severely over the first few years).

Is It Worth It?

The only time I would ever advise anyone to say yes to the overall question of, “Is the extended warranty worth it?” is if the warranty is extremely detailed, comprehensive and easy to understand, plus you just couldn’t sleep at night knowing that your prized luxury toy was not covered for certain events. If it will make that much difference to your overall mindset than it may well be worth it. Personally, I’m secure enough in the basic knowledge that I’ll win out over the long run, to eat the short term risks. Invest/save the money you would have spent on extended warranties and you really can’t lose.


Readers, do you buy extended warranty?

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I HAVE in the past, and in some cases, I’ve benefited. I bought my husband an expensive video game system years ago, and 18 years in (and 6 months after the manufacturer’s warranty ran out), it basically died – but, since I had the extended warranty, I got a brand new one for free. I think it all depends on what you’re buying, and the purpose – some things I know are going to be obsolete in 3-5 years, so why insure it?

I NEVER pay for the extended warranty on anything. I figure if I pay good money to buy a product and it turns out to be crap, then I’m going to return it. The companies should be held responsible when the product doesn’t survive a fair life expectancy. That’s just my opinion, though.

11 years ago

I never pay for them. If I pay with my credit card it lengthens the warranty and for the most part they just aren’t worth it for me. I try to buy quality products where they wouldn’t break during the warranty period.

11 years ago

I have actually never purchased an extended warranty for any product. I think most products I bought are built well and don’t need them.

Buy quality!

11 years ago

I have heard people that work at electronics stores say that they don’t get commission on the product, but they do if they sell the warranty. I very rarely buy the warranty – I expect that the product I buy will be a quality product. If it’s not, I make that the manufacturers issue. If I drop my electronic in water or otherwise ruin it, usually warranty doesn’t cover it and I should have been more careful.

11 years ago

most studies have shown, they dont pay off. its funny, when someone tries to hard to sell me something, its usually a signal that there is too much money it in for them.

11 years ago

I once bought extra for a wireless internet router and it came back to be redeemed, but the point is that as long as you can afford to eat the loss, you are almost guaranteed to win out over time right?

11 years ago

And most of them will honour that since they want to keep you on as a customer anyway.

11 years ago

I’m the same way Lance. The benefits of making sure you have a decent credit card I guess.

11 years ago

I definitely believe this Daisy. It makes sense if you think that a warranty is almost always pure profit right? I like the idea of personal responsibility coming into play as well!

11 years ago

That’s a decent rule of thumb. Like when there is a list of add-ons when you buy a vehicle right? You just know they’re putting way too much emphasis on that ultra-special fabric protector for it to be worth it.

11 years ago

I rarely buy these, but when I do, I keep them all on a single list. Did the washing machine break? Oh good, according to my records, I did buy an extended warranty. Time to pay up!

11 years ago
Reply to  MyMoneyDesign

That’s a good idea. Have you ever had them try to say that whatever broke wasn’t covered?

11 years ago

When I worked at an electronics store, my manager would always press us to offer the warranty. I would only offer it on higher priced items. I didn’t feel right offering it on other things because I felt as though it was a ripoff.

Now when I go to stores and they offer the warranty, I am amazed at how often they lie about the plan. They may be doing it unintentionally, but so many times, they claim that if the item breaks, you simply get a new one, which is hardly true.

11 years ago

Isn’t that brutal? Do you ever call them on their BS?

Would love your thoughts, please comment.x
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