Extended Warranties Almost Always a Bad Deal

A couple of weeks ago I took my grandsons to Toys R Us just to look around. This would be an observation outing. And if you believe that, you don’t know me very well. We ended up with some Pokemon cards and a cute little mechanical hamster that fits perfectly in the chubby hand of a 17-month old.

At check out, the clerk dutifully offered an extended warranty on the hamster. You’re laughing. So did I because it is funny. Who would pay $2.50 for an extended warranty on a toy that will get lost in no time and promptly forgotten? Not me, that’s for sure. I couldn’t help but think about the tiny toy hamster when I got the following letter from Lynn:

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Dear Mary: My son works for a large home improvement store. He said that because planned obsolescence is even worse than say 20 years ago it is now important to buy the extended warranties on products. I have always disagreed, thinking that they are a rip-off and created to prey on consumers’ fear.

My son purchased two extended warranties within the last five years on two major brand appliances (Whirlpool and Hoover) and he had to use both of them. Do you think he’s right? Knowing this, these days should we reconsider buying extended warranties? Lynn

Dear Lynn: It’s a matter of dollars and sense, no pun intended. I wish you’d given me the figures—the amount he spent for those extended warranties compared to the cost of repairs.

I won’t say that in every situation an extended warranty is a bad deal. But we have to deal with the law of averages. It’s like insurance. You consider your exposure, weigh the odds and react accordingly.

Keep this in mind: Sales commissions on extended warranties are quite handsome. Why do you think that is? It’s because extended warranties are a huge profit maker for retailers. People buy them and never use them. So retailers give sales people a big incentives to sell them because they boost profits. If retailers were losing money on these warranties, do you think they’d keep selling them at the current price? No way. They’d either stop offering them or boost the price. 

Here’s my advice: Buy extended warranties only on items with an unusually high known failure rate or that you plan to use beyond what would be considered typical.

Example: My laptop computer. You can be sure I carry the biggest and best extended warranty offered. I am really hard on computers. I use a single laptop and it goes with me everywhere. I’ve been known to drop my laptops. Once I actually ran over my computer bag (laptop inside) with my truck. I drag my computer bag through airports, city streets, up and down escalators, in and out of hotels. I mercilessly pound on it day in and day out.

My extended warranties over the years have paid for themselves many times over. Keep that in mind the next time you are met with a decision on an extended warranty. Statistically, under normal circumstances, if that item is going to fail it will do that in the early months of ownership when the manufacturer’s warranty is in full effect. And if you plan to use it well long beyond that basic warranty period, an extended warranty well may be the right thing for you.

But for that tiny hamster with the teeniest little switch on its tummy that when turned on lets the thing run around in circles? I think not.

Dear Mary: My daughter, son-in-law, and two grandchildren lost their entire home to a flood on September 21, when heavy rain moved through their area of Wisconsin. They did have flood insurance, but now must itemize for FEMA (Federal Emergency Management Agency) everything that they lost. My daughter is overwhelmed with this gigantic task along with living without a home and many of the necessities of life. I remember a book that you had for sale that lists the market value of popular items that people donate to charity. I wonder if this book would be helpful for them to establish the value of their things at time of loss, or if you have another suggestion. Bonnie

Dear Bonnie: Oh my heart is aching for your kids and grandchildren. I cannot imagine what they are going through. To answer your question specifically, yes! Money for Your Used Clothing Tax Year 2016 (available for purchase online or by calling 800-550-3502) is a resource that is often recommended for this specific use—at time of loss. Insurance companies accept these values without question because they are so well documented and reliable. Again this book/workbook would be highly useful in helping them establish market value.

We can all learn from your family’s tragedy: Make sure you have current video and or written record of your home and all of its furnishings. Document, document, document!

Please assure your kids of our prayers as they go through this time of rebuilding and restoration of their lives.

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2 replies
  1. george
    george says:

    Mary

    Have you done any articles on how to clean the exhaust of the electrical dryer? I believe I must do it, but quite frankly I would like avoid the high cost by doing it myself.

    Reply
  2. Audrey Dollar
    Audrey Dollar says:

    I took out an extended warranty on a Samsung refrigerator. I had to have a technician out 3 times and need one again.

    The technician advised me to buy Kenmore appliances and take out an extended warranty. With Kenmore and the warranty, a technician will come out every year and check the appliance to be sure all is functioning well. I took his advice and did that with my freezer and dish washer. I just have to call once a year and schedule this check up. The cost was not that much for a 3-year plan and it costs at least $60 just to get a technician to come out.

    Reply

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