I would agree with your advice if I were one of those people who believe it's sometimes OK to ride a bicycle without a helmet. After all, when you go down the street just for a short ride, what are the chances that something bad would actually happen? In most cases, none at all. But what about those hopefully rare moments when something rare happens. It would be great if you had the helmet (or the extended warranty) in a sudden rare emergency. Or if something might not age well, as indicated by respondent #1.
I agree with your first statement, wholeheartedly. When I bought an expensive (to replace) SmartPhone recently, I went for "the plan", simply because I know my phone will take a beating.
But then when you do the math, you come to the second part of what you wrote: at $8/month extra ($100/year, $200 over the two-year contract . . . against a $350 Early Termination Fee is the absolute worst happens), the finances aren't really there except when I ask myself whether it's worth the thought/effort involved when something goes wrong.
Same applies to the fee I pay to pre-pay for a discount of my furnace or air conditioner needs repairs. This just isn't about money, it's about your time . . . but only for certain things.
Jeff Yablon President & CEO Answer Guy and Virtual VIP Business Change Coaching
I think the third party HDTV extended warranties are a fair deal. I can buy a five year warranty for around $200 on my 50 inch plasma that covers everything that could wrong short of shooting the TV. Since repairs can be $600 for some problems, this spares me a headache if I have a problem.
I know that on average, only a few percentage of TV's will have these issues, but if my TV is one of them then it will hurt. If I don't have any problems, then I don't feel too bad about spending $200. Also, I look at it as a paying protection money to Mr. Murphy and his Law.
On the other hand, I did not take Best Buy's offer of a $149 two year warranty on my $300 PS3 slim. If it had been $20, then I would have been more inclined to go for it.
I have on all of my mp3 players (e.g. ipod). I looked at what the warranty covers and found that the battery was. I listen to my mp3 player for >40 hrs per week. This means I go through a battery every 6 months or so.
The warranty costs about the same as the battery, and lasts for 3 years.
In the last 4 years, I've gone through 7 batteries and received one free mp3 player through Best Buy's "lemon policy."
(normally, I would not buy the extended warranty, but I ran the numbers on this one and my disproportionate use of the product justified the warranty. )
My homeowners insurance gives me a slight discount for signing up for the oil company's service plan -- which includes an annual cleaning/tune-up and emergency service calls on a bunch of (listed) covered items. Hard to say how much I'm overpaying, but over the long run, if the heater stops running just once, having them show up within an hour to get it fixed may make it all worth it...
I regularly purchase maintenance contracts sold with my furniture. I have used my leather couch warranty three times in about seven years, and with several children and a dog, it's quite handy to have one.
I can't recall ever buying an extended warranty. I always figured the money I saved by NOT buying one for everything I buy can replace the things that die off prematurely on me. To my benefit, nothing memorable has ever bit the dust.
You're right about electronics as we learned back in the 1970s when everything went solid state. The failure pattern is a U-shaped curve. If it's bad it will fail very soon. If not, it won't fail for a long time. Of course, many of the big box retailers have sold stuff at cost or below in order to sell you the warranty so there's strong pressure on the buyer.
The other aspect of this is that if it fails in year two, you have an excuse to trade up to a new generation. With a warranty you might be forced to accept a repair or refurbishment or an NOS model. Since these products tend to become monotonically cheaper, I'd rather buy a new one than keep the old.
When selling or buying a house, there are insurance warranties that we have found to be of value. I never accept any other type of extended warrantee. Most electronics are good for about two years and, by then, the new technology has made them useless. One exception are television sets that seem to last forever making one reluctant to upgrade to the new technology yet envious of those who do.
Why do you assume that getting a company to honor a warranty will take less time than simply purchasing a repair or replacement? Which aspects of the transaction will take less time?
I think you hit it on the nail on the head, depends on who and what. My kids cell phone, you betcha. After the first sat on, wasn't getting fooled again. One in the water, one dropped off the roof of a car.... great deal.
I wonder about adverse selection on extended warranties though. If other guyers are like me how is it paying off?
There's one more factor in the decision of extended warranties -- the grief you will receive from your spouse if you don't get the warranty and the appliance breaks.
It really is somewhat brilliant what these big box stores have done -- they have created an opportunity to explicitly refuse additional coverage so you can feel foolish about it later.
It's also impressive how smoothly they transition from, "This is great. You need to buy it!" to "You sure you don't want to get a warranty in case this thing breaks?"
The blanket statement of "never buying extended warranties" drives me CRAZY as a retail person because people still expect things to be perfect and aren't willing to live with the consequences of having to replace or repair something themselves. Fine, don't buy the extended warranty, but don't go crying to the retailer if the item breaks out of the return policy and expecting them to take the loss instead of you. They MAY be able to deal with the manufacturer for you, but that's a courtesy. Anyone who isn't willing to deal with these losses or problems themselves SHOULD buy the extended warranty, and THAT'S one of the biggest reasons we offer them; not just to make money.
I am now contemplating purchasing extended warranties on appliances. I had a fridge die (after doing a repair paid out of pocket already) after only 7 yrs. The replacement required a repair after only 15 mos. I have this expectation that fridges should last no less than 10 yrs. and maybe as many as 20. The most recent repairman believes mfrs are not making things like fridges sturdy enough because it eats into sales. I'm inclined to at least partially believe that.
For consumer electronics, I never get the extended warranty, btw. Very rare to spend even $1000 and in 2 yrs I want the new thing anyway.
I never do, but I also get the minimum allowable car insurance, too. The reason for this is that I an willing to accept the risk of something going wrong in lieu of paying regardless of whether something does or does not. I think that's a silly idea (especially for my car insurance, since a single instance of stupidity on my part three years ago made my car insurance skyrocket to the point that every year I paid car insurance equal to the value of my car... This drastically altered my view on insurance for everything -- auto/home/products alike.)
RE: Cell phone insurance: If you have your old phone and it's still in good working condition, let that be your "insurance." They can always reactivate it. That's what the (surprisingly candid) Verizon salesman told me, anyway.
Warranties are just like any other insurance. That is, they are unprofitable, but worthwhile if the negative outcome they protect you from is unstable. Thus if you can afford to self-insure, it's always going to be better for you to do this.
If you really can't afford to replace your $200 electronics if it breaks, you shouldn't be buying it in the first place.
I buy AppleCare on MacBooks and iPhones. It is worth the extra money up front to walk into an Apple Store anywhere or call them on the phone and have them fix or replace things. I've used them a fair amount over the years, and they are usually good, though not always.
It seems like the reputation of the service provider makes a difference though. My friends who have bought Dell and Best Buy extended warranties have had lots of trouble getting things fixed or replaced.
Essentially, what you're doing is buying insurance on a specific product failing within a certain amount of time, after the manufacturer's warranty, but before the term of the extended warranty. For most products, the odds of the product failing within that period and the insurance company paying more than the cost of the insurance are strongly in favor of the insurance company.
Where there's some question, though, is a situation where, if the product failed, it would cause significant financial harm to the consumer. This is essentially what insurance was originally for. A home warranty on a newly purchased house can fall into that category. Having to stay at home for the day waiting for the plumber probably doesn't qualify under this category, though.
I agree that the warranty on electronics isn't worth it, and I never buy it. I made that decision as a freshman in college entirely due to how hard the salesman push it, thinking that if they want so badly to sell it to me, then it must be a good deal for them... However, there might be a different way of considering the issue. If a person had to save money in order to buy the product, and would have to save up the money all over again to replace it, then the warranty eliminates not only the risk of having to repay, but also the risk of spending time without the product while saving to repay. Does that change the economic situation?
Buy the tire warranty if your car comes with run-flat tires. It's worth the extra couple-hundred on the set for two reasons: 1. The tires are really lousy and blow easily. 2. They can't be repaired, only replaced. And given that it's a hundred-plus in labor to get a run-flat replaced, it's a good gamble to take. The warranty (in my case, anyway) costs less than one tire and slightly more than half the cost of replacing one tire if one blows.
Or better yet, don't get run-flats. But if you have to, the tire warranty's a better gamble than many electronic warranties.
Usually when I make purchases of good and services, it depends on the cost if I purchase a warranty. Opportunity cost is large factor in the purchasing of warranties or insurance. If the product is in the upper hundreds or thousands, I would purchase the warranty/insurance to keep from having to pay the same amount again. As far as services, it would have to denpend on the number of occurences.
I buy the extended warranty on my MacBook mainly because then I also get 3 years of free telephone support, which is very helpful when I can't figure out how to do something I want, or recover a file, or whatever.
Other than the Applecare, which is more for the support than the warranty, the only extended warranties I buy are for goods with significant moving parts, i.e. washing machines, tumble driers. These seem to require far more repairs, are tough to live without when they are broken, and purchasing a replacement is just as much hassle as getting it repaired. For other items, I agree with the poster above, solid state breaks in a U shape curve.
There is also another factor - you know that the warranty is where the retailer makes their money, and you don't want to be the sucker that gives it to them...
I always tell my mother to not buy the insurance when she sends packages. Then one time the post office lost her package. Ever since then she refuses to send anything without insurance- even though she has probably spent many times the value of whatever was in the initial package on insurance. Averting the bad psychological feeling of having a package lost is worth the extra expense from her perspective I guess.
I never buy the extended warranty. I see here people talking about "I know it usually doesn't break in time, but when it does, I'm glad I have it."
My theory is, with the money I save from never purchasing an extended warranty, I will have netted more than enough to repair/purchase a new item the odd time it needs repairs. I think of the payment that I save by not buying the warranty as a sort of self insurance premium paid to myself. After all, if the company is offering the warranty, they expect to make a profit off it. I might as well make that profit myself!
I once had the opportunity to purchase an extended warranty for a VCR that had already broken just outside the warranty window (they sent me junk mail after 1 year since I had registered the product - the original warranty was 1 year parts 90 days parts and labor). Needless to say, I took them up on it. Got a replacement VCR about 3 months later.
This reminds me of the idea I had for insurance excess: if you put the excess in a saving account then effectively you are underwriting your own insurance policy for a single claim up to that amount of money. I think there is a circumstance where extended warranties are worthwhile that you have not mentioned: where the device is essential to your livelihood (e.g. a laptop if you are a programmer) and you cannot afford to put the capital for a duplicate aside in case of emergency.
Incidentally, I bought a guitar lead with a lifetime guarantee; it failed within six months. The replacement has now also failed. The replacement for that, if I get one, is likely to fail. At what point do I give up collecting bad free guitar leads from across town? Is this the match.com problem (if you haven't found love within six months, are the six free months you're offered also going to be worthless)?
At Best Buy, I think I went for a 4-year on a printer because of the way they had their pricing tiers - I believe it was something like a 50% hike from 2 to 3 years, but only a 10% hike from 3 to 4 years. Thus in my mind they had given me a "sweet" deal for the 4 year. Pretty smart.
And this was an xmas gift for my Dad a few years back, I don't think I gave him the warranty info... woops.
We recently bought a new stove and a new dishwasher. My wife decided to get the extended warranty, and I was a little surprised when she told me that. But then she explained that the company she bought it from has introduced a new wrinkle: you buy the extended warranty for a certain amount (say, $200) and if, at the time it expires, you haven't used it in any way, then you're given in-store credit equal to the amount you paid. When I heard that, I first said, "Huh? Why would they offer a sweet deal like that?" but then I thought about it and realized it's kind of clever. People are more inclined to buy the extended warranty (obviously) and if they don't have to use it (as I think is the case with most of them) then you've got them coming back in the future for more business.
Is this a common new angle, or something unique to this store?
I have had AppleCare on all my laptops and I always wind up using it. On my current machine, I have replaced the hard drive, optical drive (twice) and the topcase/trackpad unit. Computers are composites of multi-sourced parts and there are lots of opportunities for failures. And laptops that travel around take a beating. Plus you can't beat walking into an Apple Store wherever you may happen to be with a dead machine and walk out with it all fixed an hour later.
I guess- a cost-benefit analysis is always in order. But then again not everything one does comes under the category of insuring one's future. I recently blogged a bit of the results of my work. The aim had nothing to do with insurance. Just wanted to be of help to others in a way that I can no longer be of help to a family member who recently died apparently from a deadly mix of nightly drinking to facilitate sleep and an extra pill or two to relieve angst.
It really depends on the specific warranty and the failure rate of the item in question. I know that Gamestop and and number of electronics retailers like Best Buy have either increased the price of, or stopped selling entirely, extended warranties for XBox360s because of the sky high failure rate. Also, if you buy a laptop, keep in mind that the three year failure rate is over 30% (squaretrade.com/pages/laptop-reliability-1109) and that the business models are more reliable than the consumer ones.
I actually paid a bit MORE to buy a certain plasma TV at Costco than elsewhere simply because I could use my AMEX card to pay for it and that alone extends the existing warranty by one year. And from what I have heard from others, AMEX is pretty good about just allowing you to get a new whatever it is rather than paying to have it repaired.
The first time I encountered the "extended warranty" deal, I was buying something (don't remember what) and the salesperson kept telling me how it was rated the highest reliability in the industry. Then after that he tried to sell me on the extended warranty. Well, after that, no way.
But I've encountered the angle which Kimota94 mentioned. We got the extended warranty on a HDTV, and if we don't use it, then after 4 years we can get the money back. (To tell the truth, I don't remember if we get cash or a store credit.) What's in it for the company? Well, they get to use our money for 4 years at zero percent interest. And will we remember that deal after 4 years? A lot of people will forget about it. And is the company even going to be in business after 4 years to give us the money back?
I was once firmly in the "Do not buy extended warranty, it's a load of crock" camp.
Then I bought this sweet Toshiba laptop with excellent sound. The only problem was that during the first year, the motherboard failed, the speakers failed, the screen bled and had to be replaced, the keyboard failed, and the hard disk went bust.
They didn't fail at the same time, so it was very unpleasant going back and forth to the service center, which had the inconvenience of being located away from my area and only kept office hours. Two years in, with warranty expired, the DVD drive failed, as did the Bluetooth wireless radio.
Naturally, I became extremely risk averse on my next laptop purchase, and I immediately plunked down an extra 7% to extend the Lenovo warranty by 2 years with home service and delivery. The motherboard failed in 1 month, so I've a feeling I won't regret this decision.
Any electronics are likely to have a better model available by the time the first one breaks. Moore's law may trump Murphy's law in the case of ipods, computers, TVs... Low turn over items like a furance, water heater, or washer are on my list of risk averse life changers if broken, items.
Speaking with my brother, who works for a large well known Computer firm here in the UK, the offer of extended warranty cash backs is a bet on the individual's apathy/lethargy. Generally the cashbacks have a limited life and very narrow encashment period in the future. The majority of individuals simply forget about the asset they have and never encash. The same applies with the cashback offers you see on many items in store. Some ridiculously small amount of these coupons are ever cashed, as low as 20% of the coupons issued.
I avoid warranties for electronics for many of the same reasons stated above by others. I've also found that I enjoy fixing things so I don't mind if the good fails, I will buy the part and fix it myself.
For example, my Ipod stopped working (no sound, still ran)after I droped it one day. I'd had it for over 2 years at that point, I pryed open the case, noticed that the ribbon cable had snaped connecting the audio jack to the rest of the system. I ordered the part off of ebay for less than 8 dollars including shipping, waited 3 days for it to arrive, pried the thing open again and replaced the part (total work time 10 minutes).
Cost: 3 days without my ipod, 2 minutes to purchase the part, 10 minutes to fix the thing and $8 of my hard earned money
Or I could have spent another $200 plus on a new Ipod
I live in Phoenix. Having priority service makes a real difference - in the summer when it is 140 degrees outside waiting 6 hours for an AC repairman is unbelievably better than waiting two days!
Also, I work from home. When my internet service goes out I can't work. Having Cox fix my service often took two-three days. Under their priority plan I can get service the same day. What I get paid for just one day of work I would otherwise miss will pay for several years of this service.
I tend to go for appliances that come with guarantees that are above the norm. Both my Fridge Freezer and TV came with manufacturers 5 year guarantees which says to me that they don't think it's going to break in the first 5 years.
I probably pay more for the initial product due to this, but no more than the product is worth to me.
When I teach insurance theory to my economics students, I make a point of distinguishing between catastrophic losses and non-catastrophic losses.
For catastrophic losses, it would be a really big financial blow if you ended up on the wrong side of the risk. It's worth paying extra to protect yourself from that. For most people, cars, houses, health, and (for dependents) life fall into this category. So I bought the extended warranty on my car.
For non-catastrophic losses, you're better off self-insuring. All these extended warranties add up to enough to cover the few things that actually do break (outside of the standard warranty).
(For the curious, the rationale for this is something called Rabin's Calibration Theorem, which points out the logical consequences of being risk averse over small risks.)
The two exceptions are (1) if you are an extremely bad risk--not just a worse risk than average, but a much worse risk than the average for the people who buy the extended warranty, so that the insurance might actually be an expected winning bet; or
(2) the extended warranty comes with "extras" that are what you're really buying, like easier service, which is the case covered in the original article.
i always do only because my macs seem to konk out on the 2nd year!!!
ResponderEliminarI would agree with your advice if I were one of those people who believe it's sometimes OK to ride a bicycle without a helmet. After all, when you go down the street just for a short ride, what are the chances that something bad would actually happen? In most cases, none at all. But what about those hopefully rare moments when something rare happens. It would be great if you had the helmet (or the extended warranty) in a sudden rare emergency. Or if something might not age well, as indicated by respondent #1.
ResponderEliminarI agree with your first statement, wholeheartedly. When I bought an expensive (to replace) SmartPhone recently, I went for "the plan", simply because I know my phone will take a beating.
ResponderEliminarBut then when you do the math, you come to the second part of what you wrote: at $8/month extra ($100/year, $200 over the two-year contract . . . against a $350 Early Termination Fee is the absolute worst happens), the finances aren't really there except when I ask myself whether it's worth the thought/effort involved when something goes wrong.
Same applies to the fee I pay to pre-pay for a discount of my furnace or air conditioner needs repairs. This just isn't about money, it's about your time . . . but only for certain things.
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I think the third party HDTV extended warranties are a fair deal. I can buy a five year warranty for around $200 on my 50 inch plasma that covers everything that could wrong short of shooting the TV. Since repairs can be $600 for some problems, this spares me a headache if I have a problem.
ResponderEliminarI know that on average, only a few percentage of TV's will have these issues, but if my TV is one of them then it will hurt. If I don't have any problems, then I don't feel too bad about spending $200. Also, I look at it as a paying protection money to Mr. Murphy and his Law.
On the other hand, I did not take Best Buy's offer of a $149 two year warranty on my $300 PS3 slim. If it had been $20, then I would have been more inclined to go for it.
I have on all of my mp3 players (e.g. ipod). I looked at what the warranty covers and found that the battery was. I listen to my mp3 player for >40 hrs per week. This means I go through a battery every 6 months or so.
ResponderEliminarThe warranty costs about the same as the battery, and lasts for 3 years.
In the last 4 years, I've gone through 7 batteries and received one free mp3 player through Best Buy's "lemon policy."
(normally, I would not buy the extended warranty, but I ran the numbers on this one and my disproportionate use of the product justified the warranty. )
My homeowners insurance gives me a slight discount for signing up for the oil company's service plan -- which includes an annual cleaning/tune-up and emergency service calls on a bunch of (listed) covered items. Hard to say how much I'm overpaying, but over the long run, if the heater stops running just once, having them show up within an hour to get it fixed may make it all worth it...
ResponderEliminarI regularly purchase maintenance contracts sold with my furniture. I have used my leather couch warranty three times in about seven years, and with several children and a dog, it's quite handy to have one.
ResponderEliminarI can't recall ever buying an extended warranty. I always figured the money I saved by NOT buying one for everything I buy can replace the things that die off prematurely on me. To my benefit, nothing memorable has ever bit the dust.
ResponderEliminarYou're right about electronics as we learned back in the 1970s when everything went solid state. The failure pattern is a U-shaped curve. If it's bad it will fail very soon. If not, it won't fail for a long time. Of course, many of the big box retailers have sold stuff at cost or below in order to sell you the warranty so there's strong pressure on the buyer.
ResponderEliminarThe other aspect of this is that if it fails in year two, you have an excuse to trade up to a new generation. With a warranty you might be forced to accept a repair or refurbishment or an NOS model. Since these products tend to become monotonically cheaper, I'd rather buy a new one than keep the old.
When selling or buying a house, there are insurance warranties that we have found to be of value. I never accept any other type of extended warrantee. Most electronics are good for about two years and, by then, the new technology has made them useless. One exception are television sets that seem to last forever making one reluctant to upgrade to the new technology yet envious of those who do.
ResponderEliminarWhy do you assume that getting a company to honor a warranty will take less time than simply purchasing a repair or replacement? Which aspects of the transaction will take less time?
ResponderEliminarI think you hit it on the nail on the head, depends on who and what. My kids cell phone, you betcha. After the first sat on, wasn't getting fooled again. One in the water, one dropped off the roof of a car.... great deal.
ResponderEliminarI wonder about adverse selection on extended warranties though. If other guyers are like me how is it paying off?
There's one more factor in the decision of extended warranties -- the grief you will receive from your spouse if you don't get the warranty and the appliance breaks.
ResponderEliminarIt really is somewhat brilliant what these big box stores have done -- they have created an opportunity to explicitly refuse additional coverage so you can feel foolish about it later.
It's also impressive how smoothly they transition from, "This is great. You need to buy it!" to "You sure you don't want to get a warranty in case this thing breaks?"
The blanket statement of "never buying extended warranties" drives me CRAZY as a retail person because people still expect things to be perfect and aren't willing to live with the consequences of having to replace or repair something themselves. Fine, don't buy the extended warranty, but don't go crying to the retailer if the item breaks out of the return policy and expecting them to take the loss instead of you. They MAY be able to deal with the manufacturer for you, but that's a courtesy. Anyone who isn't willing to deal with these losses or problems themselves SHOULD buy the extended warranty, and THAT'S one of the biggest reasons we offer them; not just to make money.
ResponderEliminarI am now contemplating purchasing extended warranties on appliances. I had a fridge die (after doing a repair paid out of pocket already) after only 7 yrs. The replacement required a repair after only 15 mos. I have this expectation that fridges should last no less than 10 yrs. and maybe as many as 20. The most recent repairman believes mfrs are not making things like fridges sturdy enough because it eats into sales. I'm inclined to at least partially believe that.
ResponderEliminarFor consumer electronics, I never get the extended warranty, btw. Very rare to spend even $1000 and in 2 yrs I want the new thing anyway.
I never do, but I also get the minimum allowable car insurance, too. The reason for this is that I an willing to accept the risk of something going wrong in lieu of paying regardless of whether something does or does not. I think that's a silly idea (especially for my car insurance, since a single instance of stupidity on my part three years ago made my car insurance skyrocket to the point that every year I paid car insurance equal to the value of my car... This drastically altered my view on insurance for everything -- auto/home/products alike.)
ResponderEliminarRE: Cell phone insurance: If you have your old phone and it's still in good working condition, let that be your "insurance." They can always reactivate it. That's what the (surprisingly candid) Verizon salesman told me, anyway.
ResponderEliminarWarranties are just like any other insurance. That is, they are unprofitable, but worthwhile if the negative outcome they protect you from is unstable. Thus if you can afford to self-insure, it's always going to be better for you to do this.
ResponderEliminarIf you really can't afford to replace your $200 electronics if it breaks, you shouldn't be buying it in the first place.
I buy AppleCare on MacBooks and iPhones. It is worth the extra money up front to walk into an Apple Store anywhere or call them on the phone and have them fix or replace things. I've used them a fair amount over the years, and they are usually good, though not always.
ResponderEliminarIt seems like the reputation of the service provider makes a difference though. My friends who have bought Dell and Best Buy extended warranties have had lots of trouble getting things fixed or replaced.
Essentially, what you're doing is buying insurance on a specific product failing within a certain amount of time, after the manufacturer's warranty, but before the term of the extended warranty. For most products, the odds of the product failing within that period and the insurance company paying more than the cost of the insurance are strongly in favor of the insurance company.
ResponderEliminarWhere there's some question, though, is a situation where, if the product failed, it would cause significant financial harm to the consumer. This is essentially what insurance was originally for. A home warranty on a newly purchased house can fall into that category. Having to stay at home for the day waiting for the plumber probably doesn't qualify under this category, though.
I agree that the warranty on electronics isn't worth it, and I never buy it. I made that decision as a freshman in college entirely due to how hard the salesman push it, thinking that if they want so badly to sell it to me, then it must be a good deal for them...
ResponderEliminarHowever, there might be a different way of considering the issue. If a person had to save money in order to buy the product, and would have to save up the money all over again to replace it, then the warranty eliminates not only the risk of having to repay, but also the risk of spending time without the product while saving to repay. Does that change the economic situation?
Buy the tire warranty if your car comes with run-flat tires. It's worth the extra couple-hundred on the set for two reasons: 1. The tires are really lousy and blow easily. 2. They can't be repaired, only replaced. And given that it's a hundred-plus in labor to get a run-flat replaced, it's a good gamble to take. The warranty (in my case, anyway) costs less than one tire and slightly more than half the cost of replacing one tire if one blows.
ResponderEliminarOr better yet, don't get run-flats. But if you have to, the tire warranty's a better gamble than many electronic warranties.
Usually when I make purchases of good and services, it depends on the cost if I purchase a warranty. Opportunity cost is large factor in the purchasing of warranties or insurance. If the product is in the upper hundreds or thousands, I would purchase the warranty/insurance to keep from having to pay the same amount again. As far as services, it would have to denpend on the number of occurences.
ResponderEliminarI buy the extended warranty on my MacBook mainly because then I also get 3 years of free telephone support, which is very helpful when I can't figure out how to do something I want, or recover a file, or whatever.
ResponderEliminarOther than the Applecare, which is more for the support than the warranty, the only extended warranties I buy are for goods with significant moving parts, i.e. washing machines, tumble driers. These seem to require far more repairs, are tough to live without when they are broken, and purchasing a replacement is just as much hassle as getting it repaired. For other items, I agree with the poster above, solid state breaks in a U shape curve.
ResponderEliminarThere is also another factor - you know that the warranty is where the retailer makes their money, and you don't want to be the sucker that gives it to them...
I always tell my mother to not buy the insurance when she sends packages. Then one time the post office lost her package. Ever since then she refuses to send anything without insurance- even though she has probably spent many times the value of whatever was in the initial package on insurance. Averting the bad psychological feeling of having a package lost is worth the extra expense from her perspective I guess.
ResponderEliminarI never buy the extended warranty. I see here people talking about "I know it usually doesn't break in time, but when it does, I'm glad I have it."
ResponderEliminarMy theory is, with the money I save from never purchasing an extended warranty, I will have netted more than enough to repair/purchase a new item the odd time it needs repairs. I think of the payment that I save by not buying the warranty as a sort of self insurance premium paid to myself. After all, if the company is offering the warranty, they expect to make a profit off it. I might as well make that profit myself!
I once had the opportunity to purchase an extended warranty for a VCR that had already broken just outside the warranty window (they sent me junk mail after 1 year since I had registered the product - the original warranty was 1 year parts 90 days parts and labor). Needless to say, I took them up on it. Got a replacement VCR about 3 months later.
ResponderEliminarThis reminds me of the idea I had for insurance excess: if you put the excess in a saving account then effectively you are underwriting your own insurance policy for a single claim up to that amount of money. I think there is a circumstance where extended warranties are worthwhile that you have not mentioned: where the device is essential to your livelihood (e.g. a laptop if you are a programmer) and you cannot afford to put the capital for a duplicate aside in case of emergency.
ResponderEliminarIncidentally, I bought a guitar lead with a lifetime guarantee; it failed within six months. The replacement has now also failed. The replacement for that, if I get one, is likely to fail. At what point do I give up collecting bad free guitar leads from across town? Is this the match.com problem (if you haven't found love within six months, are the six free months you're offered also going to be worthless)?
Why is "Benjamin Franklin" the brand name of a plumber, rather than an electrician?
ResponderEliminarAt Best Buy, I think I went for a 4-year on a printer because of the way they had their pricing tiers - I believe it was something like a 50% hike from 2 to 3 years, but only a 10% hike from 3 to 4 years. Thus in my mind they had given me a "sweet" deal for the 4 year. Pretty smart.
ResponderEliminarAnd this was an xmas gift for my Dad a few years back, I don't think I gave him the warranty info... woops.
We recently bought a new stove and a new dishwasher. My wife decided to get the extended warranty, and I was a little surprised when she told me that. But then she explained that the company she bought it from has introduced a new wrinkle: you buy the extended warranty for a certain amount (say, $200) and if, at the time it expires, you haven't used it in any way, then you're given in-store credit equal to the amount you paid. When I heard that, I first said, "Huh? Why would they offer a sweet deal like that?" but then I thought about it and realized it's kind of clever. People are more inclined to buy the extended warranty (obviously) and if they don't have to use it (as I think is the case with most of them) then you've got them coming back in the future for more business.
ResponderEliminarIs this a common new angle, or something unique to this store?
I have had AppleCare on all my laptops and I always wind up using it. On my current machine, I have replaced the hard drive, optical drive (twice) and the topcase/trackpad unit. Computers are composites of multi-sourced parts and there are lots of opportunities for failures. And laptops that travel around take a beating. Plus you can't beat walking into an Apple Store wherever you may happen to be with a dead machine and walk out with it all fixed an hour later.
ResponderEliminarI guess- a cost-benefit analysis is always in order. But then again not everything one does comes under the category of insuring one's future. I recently blogged a bit of the results of my work. The aim had nothing to do with insurance. Just wanted to be of help to others in a way that I can no longer be of help to a family member who recently died apparently from a deadly mix of nightly drinking to facilitate sleep and an extra pill or two to relieve angst.
ResponderEliminarIt really depends on the specific warranty and the failure rate of the item in question. I know that Gamestop and and number of electronics retailers like Best Buy have either increased the price of, or stopped selling entirely, extended warranties for XBox360s because of the sky high failure rate. Also, if you buy a laptop, keep in mind that the three year failure rate is over 30% (squaretrade.com/pages/laptop-reliability-1109) and that the business models are more reliable than the consumer ones.
ResponderEliminarI actually paid a bit MORE to buy a certain plasma TV at Costco than elsewhere simply because I could use my AMEX card to pay for it and that alone extends the existing warranty by one year.
ResponderEliminarAnd from what I have heard from others, AMEX is pretty good about just allowing you to get a new whatever it is rather than paying to have it repaired.
The first time I encountered the "extended warranty" deal, I was buying something (don't remember what) and the salesperson kept telling me how it was rated the highest reliability in the industry. Then after that he tried to sell me on the extended warranty. Well, after that, no way.
ResponderEliminarBut I've encountered the angle which Kimota94 mentioned. We got the extended warranty on a HDTV, and if we don't use it, then after 4 years we can get the money back. (To tell the truth, I don't remember if we get cash or a store credit.) What's in it for the company? Well, they get to use our money for 4 years at zero percent interest. And will we remember that deal after 4 years? A lot of people will forget about it. And is the company even going to be in business after 4 years to give us the money back?
Vacuum cleaners. They go kaput in 2 years (at least mine do!!)
ResponderEliminarI was once firmly in the "Do not buy extended warranty, it's a load of crock" camp.
ResponderEliminarThen I bought this sweet Toshiba laptop with excellent sound. The only problem was that during the first year, the motherboard failed, the speakers failed, the screen bled and had to be replaced, the keyboard failed, and the hard disk went bust.
They didn't fail at the same time, so it was very unpleasant going back and forth to the service center, which had the inconvenience of being located away from my area and only kept office hours. Two years in, with warranty expired, the DVD drive failed, as did the Bluetooth wireless radio.
Naturally, I became extremely risk averse on my next laptop purchase, and I immediately plunked down an extra 7% to extend the Lenovo warranty by 2 years with home service and delivery. The motherboard failed in 1 month, so I've a feeling I won't regret this decision.
Any electronics are likely to have a better model available by the time the first one breaks. Moore's law may trump Murphy's law in the case of ipods, computers, TVs... Low turn over items like a furance, water heater, or washer are on my list of risk averse life changers if broken, items.
ResponderEliminarSpeaking with my brother, who works for a large well known Computer firm here in the UK, the offer of extended warranty cash backs is a bet on the individual's apathy/lethargy. Generally the cashbacks have a limited life and very narrow encashment period in the future. The majority of individuals simply forget about the asset they have and never encash.
ResponderEliminarThe same applies with the cashback offers you see on many items in store. Some ridiculously small amount of these coupons are ever cashed, as low as 20% of the coupons issued.
I avoid warranties for electronics for many of the same reasons stated above by others. I've also found that I enjoy fixing things so I don't mind if the good fails, I will buy the part and fix it myself.
ResponderEliminarFor example, my Ipod stopped working (no sound, still ran)after I droped it one day. I'd had it for over 2 years at that point, I pryed open the case, noticed that the ribbon cable had snaped connecting the audio jack to the rest of the system. I ordered the part off of ebay for less than 8 dollars including shipping, waited 3 days for it to arrive, pried the thing open again and replaced the part (total work time 10 minutes).
Cost: 3 days without my ipod, 2 minutes to purchase the part, 10 minutes to fix the thing and $8 of my hard earned money
Or I could have spent another $200 plus on a new Ipod
I live in Phoenix. Having priority service makes a real difference - in the summer when it is 140 degrees outside waiting 6 hours for an AC repairman is unbelievably better than waiting two days!
ResponderEliminarAlso, I work from home. When my internet service goes out I can't work. Having Cox fix my service often took two-three days. Under their priority plan I can get service the same day. What I get paid for just one day of work I would otherwise miss will pay for several years of this service.
Most property and casualty insurance companies are happy to get forty percent to cover profit and expenses. Warranty insurance is exactly opposite.
ResponderEliminarLook at the odds. Then tell yourself the market punishes excess. Miss anything there Scout?
I tend to go for appliances that come with guarantees that are above the norm. Both my Fridge Freezer and TV came with manufacturers 5 year guarantees which says to me that they don't think it's going to break in the first 5 years.
ResponderEliminarI probably pay more for the initial product due to this, but no more than the product is worth to me.
When I teach insurance theory to my economics students, I make a point of distinguishing between catastrophic losses and non-catastrophic losses.
ResponderEliminarFor catastrophic losses, it would be a really big financial blow if you ended up on the wrong side of the risk. It's worth paying extra to protect yourself from that. For most people, cars, houses, health, and (for dependents) life fall into this category. So I bought the extended warranty on my car.
For non-catastrophic losses, you're better off self-insuring. All these extended warranties add up to enough to cover the few things that actually do break (outside of the standard warranty).
(For the curious, the rationale for this is something called Rabin's Calibration Theorem, which points out the logical consequences of being risk averse over small risks.)
The two exceptions are
(1) if you are an extremely bad risk--not just a worse risk than average, but a much worse risk than the average for the people who buy the extended warranty, so that the insurance might actually be an expected winning bet; or
(2) the extended warranty comes with "extras" that are what you're really buying, like easier service, which is the case covered in the original article.