What To Consider Before Buying An Extended Warranty

The New York Times has an article about why consumers buy extended warranties for electronic products and other appliances, especially since we rarely have enough information at the moment of sale to make an informed decision. Here are three things to watch out for the next time you’re buying some fun electronic device.

Know the failure rate of the product you’re buying.
The best way to establish the actual value of an extended warranty is to know the failure rate of the product; then you can make a better guess about whether it’s financially acceptable to you. For instance, the warranty website SquareTrade estimates failure rates for Wii consoles at 2.7% over 3 years, and they sell their Wii warranty for $30.

To a perfectly rational person, that insurance is worth exactly 2.7 percent of $200, or $5.40. But it can be worth more to someone who fears financial loss of the product or the inconvenience of repairs.

Finding failure rates can be difficult, though. Here’s a list of generic failure rates from data released in 2006, or you can sometimes find info by Googling the name of the item + “failure rate.” You might also want to find out beforehand how responsive the manufacturer is with defective products—Nintendo, for example, has a pretty good reputation when it comes to fixing devices that break through no fault of the owner.

If you’re buying something that gives you pleasure, put off any decision about a warranty for a week or two.
The NYT article cites some research by psychologists that indicates consumers who are buying products that make them happier tend to buy more extended warranties. You might think this is because they tend to break down more, but you’d be wrong—with the exception of the Xbox 360, which I believe has a failure rate of somewhere around 11,000%, it’s household appliances like washers and dryers that break down more frequently. And yet, fewer customers buy those extended warranties, and pay less for them when they do.

If you get a good deal on something, don’t even consider an extended warranty at the time of purchase.
Because you’ll be so high on the fact that you got a good deal, you’ll fall right into the trap described above of being more risk-averse than normal, and hence more likely to throw away your savings at the register on an overpriced extended warranty.

“Don’t Worry, Be Happy: The Warranty Psychology” [New York Times]
(Photo: shalf)

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  1. Silversmok3 says:

    Better yet, know the MFR’s warranty of the product youre buying. A lot of replacement plans simply charge you for the retailer sending the broken product to the MFR, which is something you can do yourself with the product warranty that it comes with.

  2. Julia789 says:

    My Bulova watch that I bought a year ago broke yesterday (a small part, the crown). I took it to the Kay Jewelers and they kept saying over and over again “You should have bought the ultimate watch warranty.” Then another associate would say loudly in front of the person near me, who was buying a watch “See! You should have bought the ultimate watch warranty.”

    It’s only going to be a few dollars to fix the little spinner. It was just annoying to be tsk tsk tsk’d for not buying “The ultimate watch warranty” which my husband and I are now going to joke about and elbow each other, anytime we say something that has to do with a watch.

    • bohemian says:

      @Julia789: Do you remember how much the “ultimate watch warranty” was?

      • Julia789 says:

        @bohemian: Because it was a year ago I don’t recall. If it was five or ten dollars I might have sprung for it on a $200 watch. I recall it was enough that I said “no thank you.” Maybe $40 or $50? I tried to look it up on their website but couldn’t find it.

        I do remember hearing unfortunate things from someone about getting service on their jewelry warranty, like back-ordered parts and jewelry being held for weeks at a time.

        For a few dollars to fix the crown, it’s not a big deal. We just thought it was silly and now want to say “Should have bought the ultimate watch warranty!” every time we look at our watches.

  3. FatLynn says:

    I would also suggest you know what is/is not covered under the extended warranty. While it sounds like common sense, read the fine print.

  4. phate says:

    “Know the failure rate of the product you’re buying.” — Good advice.

    Also weigh in the amount of work its going to take to get your item fixed when it does break.

    Eg. Knowing that is going to take almost a month of your time to replace your laptop via warranty when it goes tits up, you might just reconsider that extended warranty, if not the entire purchase.

  5. Chocotanya says:

    I have never bothered with extended warranties except for one thing: our countertop dishwasher. It’s a replacement warranty for a total of 3 years and we’re on our 4th or 5th machine so far; not one of them has ever made it through the warranty period without breaking down. So, for $50, we get a brand new dishwasher, and when we pay $50 for a new warranty we’re covered for another 3 years.

    It seems, though, that replacement warranties are pretty rare. I’m not sure I’d be so eager to pay if it was for a repair warranty instead.

  6. dumblonde says:

    The only thing I ever buy extended warranties for are my computers and I’ve always had to use the warranties at least once. I got at least $1,000 worth of repairs for my iMac. But apart from that they’re pretty much a waste of money. Also pay attention to your credit card, they sometimes extend the warranty on your purchases.

  7. Myron says:

    The vendor has already had their actuaries figure this all out and priced the insurance to make a profit. So if the vendor, which has all the data, is correct, you will PROBABLY not come out ahead buying the insurance. (that’s true for all insurance but you still should insure against bad outcomes you can’t afford, like your house burning down)

  8. shepd says:

    Here’s another couple of things to consider:

    Is the item repairable by you? Can you get parts for it?

    Things like Vacuums, Washers, Dryers, heck, even Cars can fall into this category. If you think you can repair most of it, then you don’t need an extra warranty.

    Is the item something worth paying to repair?

    Your $100 printer is probably not something worth paying someone to repair. In that case, an extended warranty might be worth it, if it’s critical.

    • jamar0303 says:

      @shepd: …in which case a Panasonic falls squarely outside this category. It’s nearly impossible to find parts for them for self-repairs and repairs by Panasonic themselves are ridiculously expensive (I paid US$1500 to replace the screen on a T5; I would have bought another computer if it wasn’t so important to me for… reasons).

  9. Nick says:

    Actually, to a perfectly rational person, that warranty is worth only the percentage of the failures that occur after the manufacturer’s warranty (and any credit card automatic warranty extension) but before the user would likely get rid of the product. If you buy a laptop with a 1-year warranty, and get an automatic doubling of the warranty with your credit card, and typically keep your laptops for two years, the extended warranty is worth nothing.

  10. Outrun1986 says:

    Pay attention to the warranty that comes with the product, and know what it covers. I have seen people buy a 1 year warranty for the Nintendo Wii when it already comes with one from the manufacturer. Most people don’t realize that their product already comes with a warranty so they get taken in quickly by the sales pitch. If you buy a 1 year store warranty that starts on the date of purchase for something that has a 1 year warranty from the manufacturer…

    Yes the manufacturers warranty doesn’t cover everything, but I have seen few store warranties that cover everything as well. There is always something like accidental damage excluded in the fine print. Most of the time what the manufacturer gives you will suffice.

    You will be able to live without your Wii for a week or 2 while you are getting a replacement, but you might not be able to live without your computer for long, especially if you use it to run a business or just conduct important business in general and its your only computer. You might want to consider this when purchasing a warranty. How personal is the item in question and how much do you rely on the item in question?

    Don’t forget that retailers will pull whatever they can to get out of doing a warranty replacement or repair, but they will be EXTRA nice when selling you the warranty and they will tell you it covers everything.

    There is always an up to manager’s discretion clause, and if your store manager is low on numbers and needs to make up and doesn’t want to take another replacement or repair, you may be screwed and they might send you home and tell you there is nothing they can do for you. In this case you will be left with both a broken item and a worthless piece of paper that you paid extra for. Its always a possibility.

  11. farcedude says:

    Another tip – try to get stuff that you can possibly fix yourself. My iPod video’s headphone jack just died, so I ordered a new one and the tools for $30, and fixed it myself. Now, I didn’t know this when I got it, but I have applied this at other times – I bought a netbook with a hard drive instead of an ssd because I knew that I could find a 2.5″ hd to replace it with, if it ever died.

  12. Deranged_Kitsune says:

    Then there’s the whole difference of store warranty vs manufacturer’s warranty.

    I generally find that manufacturer’s are better and will result in quicker service, especially when it comes with computers, though store warranties where you can actually swap for a new unit (often hard to do) can be more convenient.

  13. oldgraygeek says:

    I buy extended warranties only for laptops, and only from the manufacturer.
    My last $1200 HP laptop got replaced after 2-1/2 years. The warranty cost $200… but the laptop was one of those doomed DV9000 series paperweights, with thermal issues that limited its life to an average of ten months per system board.
    The DV7t that replaced it has been perfect through four Windows builds (Vista, 7 RC1, Vista, 7 Ultimate RTM). Best $200 I ever spent. However, I still have its original hard drive in a box, with the factory image intact… one of the Lessons Learned from the DV9000 fiasco.

    • yevarechecha says:

      @oldgraygeek: Ditto. I bought the highest-level, longest warranty on my Dell laptop. 2 years later, I spilled soda on it and ruined it. That warranty instantly paid for itself four times over. I have a Lenovo now and a similar warranty for it.

      Of course, I also have a $3 warranty on my $22 iron. I don’t know what I was smoking the day I bought it, but the Sears cashier must have loved me. “If your $22 iron breaks, why not simply buy a new one?” you might ask. That’s a very good question.

  14. Radi0logy says:

    “If you’re buying something that gives you pleasure, put off any decision about a warranty for a week or two.”

    Good call. After a week or two it’ll be all used up and I’ll be tired of it, ready for a new pleasure something and glad I didn’t buy that extended warranty.

  15. SkuldChan says:

    Extended warranties are for the most part a waste of money. The only ones I’ve been happy with are the ones we bought for all the Dell desktops at our enterprise. We have 5 year old machines Dell still replaces parts on. No clue if it saves any money, but it sure as hell is convenient.

    Case in point – I had an extended warranty on a HP PDA – it died like a couple weeks before the warranty was up. I took it in and they couldn’t find the PDA in question since it was long since discontinued and gave me an inferior one as a replacement. Apparently the fine print allows that.

    Remember – they sell these because they are betting money (literally) that the item will run just fine for the rest of the extension and that they will never see the item ever again and they get to pocket the 100$ or whatever.

  16. rachaeljean says:

    We buy them on things that we wouldn’t be comfortable paying full price to replace once the manufactuer warranty is up, and on things we can’t fix ourselves (my husband fixes computers for a living, so no applecare fo us.)

    I think we have extended warranties on: washer & dryer (paid for itself already, and they’re only 3 years old), Dyson vacuum (bought refurbished from Amazon), and our digital camera.

  17. calchip says:

    One must also consider whether the place selling the warranty is worth a crap. Best Buy used to be very easy to deal with, now they do everything to delay, deny, and otherwise make life miserable for those who have the audacity to attempt to claim on their warranty.

    Whenever I buy things with small moving parts (tape-based camcorders are a good example) I buy an extended warranty — but usually not from the manufacturer. There are several places online that sell extended warranties. Onecall.com uses a provider that seems to be very easy to work with on warranty claims. I’ve also had very good luck with GE extended warranties, available on nearly any consumer product.

    But do your homework and search the warranty company that backs the warranty, whether bought at a retail store or online — some of them are notorious for denying claims, doing crappy repairs, or otherwise causing problems.

    • Outrun1986 says:

      @calchip: The article mentions that a squaretrade warranty costs about half of a store warranty and I have heard good things about them on the deal sites. If the deal sites like them…

      There are also 40% off coupons occasionally for squaretrade and since you can buy within 90 days of purchase you have plenty of time to think about it.

      But then again you have to be careful you don’t end up dealing with something like Fidelis (the warranty company that likes to sell you bogus car warranties).

  18. gerrycomo says:

    14 months after getting it my Sony lcd tv, screen goes black with only audio remaining. A VERY common problem after checking out the various forums about it.

    P.O.S tv, how can it be defective only after 14 months when my old bulky tube tv is still fine after 15+ years????

    I sweated very hard at work to get it. I checked Consumer Reports for failure rate, it was low around 2-3%, they even said don’t bother getting the ext. warranty.

    I should have. BAD.

    Now, I don’t have enough money to have it repaired so it sits in the corner gathering dust. Bye bye free hd.

    I’m still extremely pissed. It had to break down 2 months after Sony’s warranty. 2 frucking months.

  19. CrashMurphy says:

    with the exception of the Xbox 360, which I believe has a failure rate of somewhere around 11,000%

    That made me LOL. After all, 11,000% seems more or less accurate.

  20. wordsmithy says:

    Rule of thumb: never buy an extended warranty if it is over 20% of the cost of the item. Always buy AppleCare.

  21. AJ_Syrinx says:

    I recall buying a $399 Acer laptop (not netbook) at Best Buy a little over a year ago. The warranty they were offering was something ridiculous like $150 or $200. Hah!

    The funny thing is my laptop did have a defect but it was on warranty for one year. I took it to Best Buy first, but since it was a motherboard issue they had to ship it to Acer and wanted me to pay $70 as a “handling fee.” I ended up calling Acer myself. It cost less than $20 to ship it to them and I had it back in less than three weeks. The laptop wasn’t critical to my life that I couldn’t be without it, so three weeks wasn’t a big deal for me.

    That was back in December ’08 and the laptop has been trouble-free ever since.

  22. GreatWhiteNorth says:

    Years ago I bought two extended warranties on separate big purchases, a truck and a big screen tv. It turned out that neither warranty was worth the paper it was printed on since the process for making a claim was arduous and the ultimate payout minor.

    Experience since has confirmed what Consumerist advises. Extended warranties are rarely worth the money and you are usually better off banking the cost of the warranty to self insure if you are worried.

  23. zumdish says:

    I’ve NEVER purchased an extended warranty. Although I have occasionally repaired things that might have been covered under such a warranty, considering all the money I never spent on warranties for all those cars and appliances and electronics I am still way ahead of the game.

  24. lordargent says:

    Never buy the extended warranty on anything, ever.

    You will come out ahead in the long run.

    /Amount of money saved over my lifetime by not getting extended warranties, ~$5000

    /Amount of money spent over my lifetime on things that broke within the period that the extended warranty would have covered, $150

  25. IntheKnow says:

    If you look at Consumer Reports repair rates by product from the Nov, Dec 2009 issues, those 2006 repair rates (bases on purchases that had to be made 2002-2006) are overstated .for 2005-2009 Plus, most of their studies ask the respondents if they had a least “one major repair in the time frame listed (3-4 years). This includes the manufacturer’s warranty period! Would love to know the repair rates for post mfr warranty. Knowing that there are considerable mfr warranty claims, it is not farfetched to assume the post mfr warranty repair rates would state a tremendous case AGAINST any extended warranty, service plan or whatever pseudonym the retailer wants to call it.

    Recent studies have shown that consumers who buy these plans buy for “peace of mind,” not based on a rational decision. Well, this “peace of mind” is in part indoctrinated into, yes, gullible and less informed consumers by the retail sales associates. And yes, most of that is sales speak nonsense. Let me see, a refrigerator compressor will fail within 5 years. Statistically non-existent. A power surge will destroy my appliance. Statistically non-existent.

    One only has to ask themselves a few questions such as ” what is the big deal about the first five years you are offering me on appliances?” Years 2-4 pose only a small risk to the retailer and service plan adminstrator offering them. How many of you out there have had your appliances at least 10 years? I thought so. So again, what is the relevance of the first five years? what about year 6 or 7?

    For years consumers purchased 4 year extended warranties on large TVs. Those picture tubes lasted 15-20 years. The same knucklehead sales speak given 10-15 years ago is given today. As i read the Consumer Reports (don’t take my word – check it yourself) repair rates (at least one problem reported in a 3-4 year period) for the major TV brands, I see a range of 2-5%. LCD bulbs rated at 100,000 hours, plasma brightness (which has a half-life) as well.

    If you have to buy an extended warranty, service plan, protection plan for a product, don’t buy the product.

    Buy online; you are guaranteed a no hassle shopping experience.

  26. LeoTs3181983 says:

    Don’t buy an Extended Service Plan for home electronics-if you do plan on purchasing one,don’t let the salesperson bribe you into doing so,and ask what the plan’s policy is. Don’t go for the old”Repair & Replacement Pan.” That’s a rip-off. When your TV,DVD player,Tivo,or DVR crashes,buy a replacement after the few years it’s worked for. Read the Consumer Limited Warranty in your product’s Operation Manual. There’s a statement that says”This warranty gives you specific legal rights. You may also have other rights which vary from state to state.” In other words,the manufacturer’s warranty is valid in the state you bought the product in,but if you move to another state,it’s not valid there.

  27. LeoTs3181983 says:

    Buying extended warranties for home electronics is a bad idea. My friends parents had such an experience at our local,long gone Circuit City. They bought a TV,purchased the Extended Product Repair & Replacement Plan,and when it crashed,they took it to be repaired at Circuit City,but after it was repaired,they came to pick it up,they told them they lost it and they couldn’t replace it. The reason they couldn’t replace is this simple:Circuit City didn’t service its home electronics in-store. They sent them to be repaired at one of the few remaining independent home electronics repair shops,and after it was repaired,it was lost,and they couldn’t replace it because they didn’t service their home electronics on-site,they serviced them at one of the few remaining independent home electronics repair shops. In conclusion,Repair & Replacement Plans are a waste of money. Simply purchase the replacement plan.

  28. LeoTs3181983 says:

    Extended warranties that offer Repair & Replacement are a waste of money. Say,if you buy an electronic device at Best Buy,and they you buy a Repair & Replacement plan,ALWAYS read the Consumer Limited Warranty on the back of the Operation Manual that states”THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS. YOU MAY ALSO HAVE OTHER RIGHTS WHICH MAY VARY FROM STATE TO STATE.” In other words,if you buy a Repair & Replacement Plan at a Best Buy in one state,and you move to another state,the device crashes,and you take it to be replaced or repaired by Best Buy,it won’t be covered. On the bottom of the Operation manual,there’s always a number you can call if you want to find a service shop. If you do take it to be repaired,and they accept the repair policy,be aware that their products aren’t serviced in-store. They’re serviced at one of the few remaining,independent electronics repair shops,and when you come to pick it up to be repaired,your product may be lost,and they won’t replace it because it’s not serviced in-store. Don’t let salespeople bribe you into buying these “Repair & Replacement Service Plans”,only purchase the Extended Service Product Replacement Plan,and always check what the policy covers.

  29. Cantras says:

    @SkokieGuy: You just agreed with exactly what they said. 2.7 % of 200 (the price of the wii), not 2.7% of the $30 warrantee. So yes, 1% of your 200k house.

  30. ArgusRun says:

    @SkokieGuy: You may be rational, but your math isn’t. $200 is the value of the product, not the warranty.

    To use your example. If the chance of your home being wrecked in one year is 1% (really, really, high) then the value of your insurance would be 1% of the value of your home ($200k) or $2,000.

    Of course inconvenience factors are much higher when your house is destroyed than when your iPod stops working.

  31. Julia789 says:

    @floraposte: He he, that would have been fun! I was tempted to say something like “Gee too bad I didn’t purchase your $40± warranty that would have covered this $10 repair!” But I just smiled and signed the repair slip. ;-)

    They weren’t being rude or insulting about it at all. It was just so silly and forced, the way they repeated it for the benefit of both the junior salesman and the other customers. They were actually very nice, just corny.

    The manufacturer warranty covers everything “inside” the watch and the mechanics. Their warranty covers the crystal face and the crown (the spinny thing that sets the time, which I discovered today is called a crown) and the band. Since repairs on those things usually aren’t more than a few dollars, and the warranty was more than the cost of likely repairs, I decided to take a gamble.

  32. Outrun1986 says:

    @floraposte: Yeah if your looking for turnaround your best bet is probably to avoid the warranty and just stick the money you would have spent into a savings account or just set it aside for future repair then find a reputable local computer repair shop. For computer repairs that is. For appliance repairs many places will send a guy the same day or the next, at least around here. We have done well with that. In these cases you might be better off paying out of pocket for the repairs rather than gambling on a warranty that might have longer turnaround.

    I was more satisfied paying for computer repair than paying for a $300 warranty that only covered the computer for 3 years. If something goes wrong it will go wrong after then, which it did. Now if the warranty had covered the computer for 6 years.. If I had purchased a warranty I would be out money, instead I paid about half of the $300 cost to get the one repair I needed done.

  33. SkokieGuy says:

    @ArgusRun: Yup, lousy math, but I still maintain that the value of my hypothetical home insurance is not $2,000.

    The value of my insurance is $200,000, that I have a 1% chance of using.

    By the article’s logic, the value of a $1000 policy on an item with a 5% failure rate is less valuable than the same policy on an item with a 10% failure rate.

    The value of the policies are the same, the risk they are insuring is different and therefore a consumer may make a different decision toward purchase.

  34. lordargent says:

    @SkokieGuy:

    I don’t think you can compare home insurance to a warranty.

    Insurance and warranties generally cover different things.

    Look at cars for example, you have insurance on your car, but you also have a warranty on a car. The warranty will cover manufacturer defects, whereas the insurance will cover external causes of failure.

    In short, extended warranties are usually a crock, but insurance is a good thing for certain items.