Are Extended Warranties Worth It?

Category: Financial News

extended warrantiesMy laptop was working fine until a few weeks after the manufacturer’s warranty expired. The initial evil thought was that these electronic devices are rigged to die out right after the warranty expires. And so I take the device to the shop for repairs. After I get the bill that’s when regret kicks in. Should I have taken out an extended warranty when I bought the product?

It’s not cut and dried where extended warranties are concerned. Here, caveat emptor rules. You’ll have to watch out for yourself but there are general guidelines for evaluating whether or not extended warranties will work for your particular situation.

For TVs, not worth it


Unless you drop, kick, or intentionally smash it, TVs are built to last. That’s the bottom line. c|net gives several good reasons why extended warranties for your TV are not worth it.

  • If TVs are defective, problems will show up early. The first 30 days are usually covered by a store’s return policy. Within a year they’re covered by the standard manufacturer’s warranty. If your TV survives for more than year, then it’s probably going to run in good condition for many years more.

  • Insurers are betting your TV won’t break down. That’s why most extended warranties are around 10%. While it looks cheap, $100 for a $1,000 TV will hurt if you don’t actually use the warranty. It’s like paying 10% more for the sticker price.

  • Many credit cards double the manufacturer’s warranty.

For cellphones, not worth it either

US News / My Money

Would you take out a warranty for something you’ll probably replace two years after you bought it? That’s what most people can’t wait to do after their two-year lock-in period for a subscription plan ends. Or maybe you’re the type who drops, breaks or loses a cellphone every two months. US News says the deductibles are so high that insurance is rarely cost-effective.

  • Credit cards offer cheaper protection. Mobile carriers can charge up to $5 monthly to insure your phone. If you buy your phone and pay your bills with your credit card, your bank may offer insurance for free.

  • Premium models, premium warranty fees. Although carriers’ opt-in protection plans are more comprehensive (loss, physical damage, theft, software malfunctions, liquid damage), the warranties for premium smartphones, which you so dearly want to protect from harm will be priced much higher. The hefty insurance price effectively wipes out benefits you might have for getting a phone on a plan.

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It’s case to case for cars

JD Power /

Because cars involve a hefty amount of money, and they’re such an integral part of our lifestyles, an extended warranty may not be a totally bad idea. Some things you need to consider:

  • You’re on a fixed budget. If you don’t want any surprises, including unexpected repair bills, and you plan to keep the car for longer than the manufacturer’s warranty then an extended warranty might be a good idea.

  • Your car has a good reliability track record. You may not be a strong candidate for extended warranties. Do the due diligence. Long term quality rating, although not a 100% guarantee, are a good indicator of your car’s reliability

  • Your car’s repair costs are low. You might not want an extended warranty. Parts and labor vary widely across models. It might be more cost-effective to pay out-of-pocket than purchase expensive extended warranties.

  • Your car is still under manufacturer’s warranty. Don’t pay double. You can always buy an extended warranty when the manufacturer’s warranty is about to end.

Wikihow offers additional tips on extended warranties for cars.

  • You’re bound to lose money. On average, less than 2% of the money collected by the seller of an extended warranty is likely to be paid out in claims. That’s what makes extended warranties profitable for retailers.

  • Don’t be pressured to make a decision. As stated above, extended warranties can be bought further down the road. You don’t have to decide on an extended warranty when you buy. And you don’t have to buy it from the retailer who sold you the car. Shop around for better deals.

  • Extended warranties are not insurance. In some states, they are not considered insurance and are not covered by insurance regulations.

  • Read the fine print. It’s not just the cost that matters. Check what’s covered. For example, brakes may be considered maintenance and are therefore not covered by insurance. Anything associated with its repair will be charged the full cost.

  • Is diagnosis covered? You may be saving on parts and the labor, but will be charged an arm and a leg for the initial diagnosis.

One thing is clear. Extended warranties are extremely profitable. That’s the reason why salesmen are aggressive in pushing you to buy them. They’re preying on your fear and apprehension.

When you buy an extended warranty, you’re essentially buying
peace of mind. Is it worth the price?


By Louie Andre

B2B & SaaS market analyst and senior writer for FinancesOnline. He is most interested in project management solutions, believing all businesses are a work in progress. No stranger to small business hiccups and drama, having been involved in a few internet startups. Prior to his for-profit ventures, he has had managed corporate communications for a Kansas City-based Children International unit.

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