Is an Extended Warranty Worth the Investment? Here’s What You Need to Know
One lovely afternoon, I stopped into a toy store with one of my grandsons to get a little something. Yes, I am one of those grandmothers. We found the cutest toy Shaving Kit, perfect for bath time. The price was under $10. At check out, and without missing a beat, the sales clerk inquired if I would like to add an extended warranty for just $4.79. Seriously. I laughed. She winced. I apologized but really, I couldn’t help it.
An extended warranty sounds like a good thing, and that’s because that’s the way it is designed.
While I cannot say that every extended warranty would be a ripoff, that’s the way I want you to start thinking of them.
Every time you are offered an extended warranty, think: Rip-Off! Then if you have doubts, make that warranty prove to you otherwise. Ask questions.
- Who is standing behind this extended warranty?
- If I should make a claim, who will come to my house to repair, fix, or replace it as required? Or will I have to find a repairman, pay for repairs and then hope to get reimbursed?
- What is my remedy if this illusive extended warranty company suddenly disappears?
- Where can I review this 3rd party extended warranty provider’s current reviews?
- Failure Rates
Manufacturer’s Warranty
Products for which there is an extended warranty option always come with a manufacturer’s warranty. We know that if a product is going to fail, most of the time, it happens at the start of that product’s life, not in the time after the original warranty expires. That means you do not need the extended warranty. As a rule, rely on the warranty that comes with the product. Then rely on your own independent research.
Profit Margins
Ever wonder why retailers are so diligent in offering extended warranties? Wonder no more. It’s all about—now, here’s a real shocker—money. Extended warranties average a 70 percent profit for the retailer. Plus, if they can get you to finance the cost of the extended warranty, the retailer ends up profiting even more.
Suppose you buy a $750 extended warranty on a new automobile and include it in the amount to be financed. Here’s an estimate of the dealer’s profit: The dealer will receive $764 from you, including the interest you will pay on the financed extended warranty after taking into consideration the 30 percent payout on claims. Now do you see why retailers push their extended warranties?
Here’s a Novel Idea
Instead of buying extended warranties, set up your own “Repair & Maintenance” savings account for all of your fixed assets cars, boats, RVs, appliances, toy shaving kits, and so on. Now make payments to your own extended warranty program every month. That way, if you do need major repairs once the regular warranty expires, you will have the money set aside and ready to go.
On the other hand, if it turns out you never require major repairs (statistics are in your favor, by the way), the “extended warranty” funds become your profits, not the retailers’.
On a Personal Note
There are only two products I have, and I will continue to buy the extended warranty because both of these are notorious for failure after the manufacturer’s warranty:
- Apple products (iPhone, iPad, MacBook, iMacPro, and so on). Maybe I am the only one who beats up my electronic devices, but that’s a fairly solid rule for me.
- Treadmills. My experience and research suggest treadmills and the like are also notorious for breakdown with extended use.
Your Turn
You should create your own well-thought-out, very short list of items for which an extended warranty may be a wise decision. Then stick to it.
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What about home warranties ?
I bought an extended warranty for a vcr dvd machine I had. The model I had , had a reputation for having a mechanical breakdown after 14 months of usage. It would stop playing back on color. It would only play back in black and white for both the DVDs and VHS tapes. Well after 14 months, I had that issue as well. I bought a 2 year extended warranty. The company repair the issue . My player lasted for another 12 years. The cost of the repair and shipping if I paid out of pocket was $140. Only spent $25 on the warranty. Money well spent. Replacement cost would have been almost $100– it was that expensive because of the VHS player that was attached to the dvd player. If I would have bought a dvd only player, my cost would have been around $50
The Big Lots cashier talked me into paying an extra $8 for the warranty on this 8×10 area rug I purchased. He said his dogs ruin his rugs and he returns them for a replacement! I’m going to try to return mine soon and will report back as to how they do!
Please do! We’ll be waiting eagerly 🙂
My 50 yr old sewing machine is almost dead. If the hubby can’t fix it, I plan on buying a basic sewing machine, a Brother, for $126, is it wise to get the 4 yr warranty for the $30?
I wouldn’t. Brother is a quality machine. I’ve been sewing for decades on several machines. Not one has ever broken or needed more than a good tune up (not covered by any warranty!) Save your money and enjoy the new machines!
Years ago I purchased a small freezer from Montgomery Wards. (I probably don’t need the years ago, but I digress!) I paid $59 for it on a great sale. After a few years I started getting aggressive solicitation to buy an extended warrantee for just $79! Say what? Why would anyone think that was a great deal? I even asked once whether they genuinely thought that was a great deal, I got basically an answer that it could be if the freezer failed. I still shake my head about that, especially since the freezer is still running and has out lived a large upright freezer by more than multiple decades!
How about an extended car warranty that you use for work? It doesn’t cover as much as I would like but on the items it does cover I’m glad to have it.
Remember the extended warranty will probably end if the company goes out of business. That is what happened to is when the furniture store we bought our leather sofa closed.
The only extended warranty I buy is for my electric water heater. My water is so hard that it’s a guarantee it will fail shortly after the manufacturer warranty ends. It has saved me hundreds over the years.