Finally some sense on extended warranties

I’ve been advocating against buying extended warranty plans for years. It doesn’t take a degree in rocket science to do the math: Most people end up putting their extended warranty into play only rarely. In fact, of the literally hundreds of gadgets and gizmos I’ve purchased, I can recall actually having a malfunctioning gizmo repaired a couple of times. So, instead I put that extended warranty into my savings account: $40 (the average cost of an extended warranty) times 100 products, that’s $4,000 that I’ve been able to hang on to. Deduct the cost of repairs for a couple of gizmos and I’ve left with at least $3,500 net positive.

Most of these extended warranty programs are, in effect, scams. Not that they aren’t genuine—but the industry is banking on this exact same calculation. They know that for every 10 warranties they sell, only one or two will ever be used (at most).

I’ve only one exception to the rule: I’ve always purchased a full AppleCare program for my Apple laptops. This has proven to be worth it, but I’ve got to be honest here: I’m pretty tough on my laptop. I carry it with me everywhere, on a daily basis—and, bottom line, it’s my lifeline. If the laptop breaks, I can’t get my work done—so it’s a reasonable business expense.

Consumer Reports recently ran a full-page ad warning consumers to avoid such warranty programs. Their latest study, “Why You Don’t Need An Extended Warranty,” cites several reasons for their recommendation:

  • Products typically last beyond the extended-warranty period.
  • When products fail sooner, they typically do so within the product’s warranty period. Consider buying electronics and appliances as gifts as close to the giving date as possible so the recipient begins to use it right away. That’s so that if it fails and there’s a short warranty period, the product will fail within the warranty period.
  • When electronics break and they are out of warranty, the repair often costs about the same as the cost of the warranty.
  • For some items, it’s cheaper to replace it with a new model than it is to buy a warranty or repair it.

In an almost eerie coincidence, they recommend extended warranty plans with only two products: Rear projection televisions and Apple computers.