If our dog is going to run us about £40-50 pm why not pay that to ourselves? Over 10 years that can easily translate into 4-5k if there is no injury (and if we're diligent in paying ourselves). I'm aware that a major injury can easily cost 2-3k in vet charges but hopefully that's a slim to none chance.

What are others thoughts on this. Is it worth the gamble/savings.

Don't over complicate your life with extra accounts for this and that.

@TCama: I came here to post the same thing; this only works if you're buying a fair amount of high priced electronics, if you only buy the occasional thing your fund will never grow large enough to cover the cost of repair when something does crap out. If you're rich and are regularily buying items which would necessitate an extended warranty and your warranty fund does grow to $500+ (not an unrealitic cost for a laptop repair), you can probably just afford to pay out of pocket for any repairs that come up anyway. For the average person that purchases one high ticket item every year or so, this makes no sense financially.

There is also another issue to consider. If Costco extends the warranty what do they do in the instance of failure compared to what you have to pay to extend the warranty. For instance, on the iphone example (though I do not know if they are sold at Costco lets just use if for illustrative purposes) if Costco extends for a year v. apple but you have to jump through 15 hoops with Costco and it is a huge pain it may be worth it to go with the Apple warranty if they do a better job of servicing the item/don't make you jump through huge hoops to get the warranty.

I remember back in the day I got warranty on a computer from Best Buy (I was young and I made many mistakes I would not make today such as even stepping foot in BB). Anyway, my CD-ROM (see it was awhile ago) broke and BB was supposed to fix it. I had to bring in like 10 CDs and put them in to show the drive was broken but on every CD they claimed there was a minuscule scratch or something that was causing the problem rather than a problem with the CD-ROM. I finally bought a new CD opened it in front of them and had them put it in and of course the CD-ROM was still broken. Then, in the pre Geek Squad days they could not even fix it on the premises. They had to send the whole computer away and it took a few weeks to replace the CD-ROM. To make a long story short if I had had to pay extra for a warranty where I did not have to bring a team of engineers just to prove a problem and then wait 2 weeks to replace a CD ROM it would be worth it.

Extended warranty providers make money because only a small percentage of devices break during the warranty period. By setting up an account you're saving money based on the same concept, only on a smaller scale. It will more reliably work in your favor at a large scale. I would guess that with somewhere around 5-7 devices it's likely to work out in your favor if you put the extended warranty money in a bank account. With too few devices it's a bit of a crapshoot. To calculate your expected outcome you'd need to know failure rates and warranty costs.

There are other factors to consider too. Some devices have particularly high failure rates that aren't always reflected in the warranty cost (warranty cost is usually based on price). Some credit cards will extend your warranty for another year for free. Some stores will extend the warranty for free (Costco).

Remember when you were in high school, you wondered when you were going to need all of that math? Now is when you need it. How often do we see people who are in financial ruin because they didn't understand the mathematics of money?

True, both may never break but that is the idea of insurance. You pay a certain amount now to insure against large losses later. I have a computer that has broken multiple times. The $300 warranty has paid for itself over and over again. I ran the risk of having the computer never break but I slept easier at night knowing I would not have to foot a $500 repair bill or have to buy a new computer because I had the warranty.

Anyway what TCama is pointing out is that these things work out in the extreme aggregate - Apple sells millions of iPhones and knows the usual number that break and the cost of repair and therefore can offer an insurance plan based on thousands or millions of items. For an individual though they may get luck/unlucky. If you get unlucky the plan outlined in the post has serious shortfalls.

Insurance is essentially lodging a bet that your item will break in the span the insurance covers it. For some things, it definitely is worth it because the product is failure-prone. For most others, it's a complete ripoff.

The same issues might come into play however. Do the repairs cost much more for us than they do for the extended warranty companies? It could make us getting it repaired to expensive, when it wouldn't actually cost them that much?

@TCama: You fail to take into account the rate of failure, and the fact that you will have additional monies from other self-insured items in that account. It is unlikely your iPhone will fail within 3 years. Just as it is unlikely your HDTV, your DVD Player, your Washer/Dryer and your Refrigerator will fail in that time period. By pooling all that money into one fund you will still be better off then if you had purchased separate warranties.

@TCama: I think it might work if you do this for a few products at the same time. You'd be betting that not ALL of them would break, and atleast the one that did break would be repaired or replaced under the collective sum.

It would also work better if the interest rates were higher.. but I'm not holding my breath.

Let's take AppleCare for example. $70 for an iPhone, and the cheapest iPhone 3GS is $200. AppleCare extends the 1-year warranty by 2 years, making it a 3-year warranty.

You buy the phone and put $70 into an account with 1.3% APR. For the sake of argument, we'll say that the APR averages 1.5% over the course of three years. In that period of time, you would earn $3.19 of interest. Yes, three dollars and nineteen cents. You would have $73.19

So your phone breaks after 15 months of use. I can't calculate interest, so let's just say you have the $1.05 of interest from the first year of the account, and you have $71.05 in the account. Your phone cannot be fixed. What do you do?

Insurance is not the same as a loan, especially insurance that you pay in one lump sum.

Econ 101 (or at least 301)--self-insure against small losses.