Extended Warranties Suck
I’ve bought my fair share of electronics from retailers that push expensive extended warranties. I’ve always thought of them as a rip-off, but the Washington Post published a great article that goes into great detail. The whole ‘extended warranty’ business is just overpriced insurance that is rarely used, about 20% of revenues are paid out as claims. Most electronics we buy today will be obsolete long before your extended warranty expires. You’re better off saving your money for your next purchase.
“Warranty Week, an industry publication, last year estimated that of the $15 billion in premiums charged consumers in 2004, $7.5 billion went straight into the pockets of the stores that sell warranties as their cut.
Of the remaining $7.5 billion, the publication estimated that $3 billion was paid in claims by the insurance companies that back the plans. On the other hand, according to the Insurance Information Institute in 2004, the U.S. auto insurance industry paid out $66 in claims for every $100 in premiums.”
One of the story’s sources makes an excellent point that good companies will fix their products. This summer my high-end Nikon digital camera just stopped working after two years of light usage. I called Nikon’s repair center and they happily offered to repair it even though it was well out of warranty. Not only did they fix the camera, they also gave it a thorough cleaning, updated the software, shipped it back with a complimentary carrying strap and extra battery. I think Nikon qualifies as a good company and a good example of how buying is always the best way to go for expensive purchases.
The decision to buy an extended warranty, however, defies the recommendations of economists, consumer advocates and product quality experts, who all warn that the plans rarely benefit consumers and are nearly always a waste of money.
Don’t let the salespeople pressure you into overpriced warranties and remember that almost all products come with a one year warranty. If the product they’re selling you is good, why would you need an extended warranty?