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Is Buying an Extended Warranty Ever a Good Idea? 329

waderoush writes "Consumer Reports calls extended warranties 'money down the drain,' and as a tech journalist and owner of myriad gadgets — none of which have ever conked out or cracked up during the original warranty period — that was always my attitude too. But when I met recently with Steve Abernethy, CEO of San Francisco-based warranty provider SquareTrade, I tried to keep an open mind, and I came away thinking that the industry might be changing. In a nutshell, Abernethy says he's aware of the extended-warranty industry's dreadful reputation, but he says SquareTrade is working to salvage it through a combination of lower prices, broader coverage, and better service. On top of that, he made some persuasive points – which don't seem to figure into Consumer Reports' argument – about the way the 'risk vs. severity' math has changed since the beginning of the smartphone and tablet era. One-third of smartphone owners will lose their devices to drops or spills within the first three years of purchase, the company's data shows. If you belong to certain categories — like people in big households, or motorcycle owners, or homeowners with hardwood floors — your risk is even higher. So, in the end, the decision about buying an extended warranty boils down to whether you think you can defy the odds, and whether you can afford to buy a new device at full price if you're one of the unlucky ones."
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Is Buying an Extended Warranty Ever a Good Idea?

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  • by fruitbane ( 454488 ) on Friday May 03, 2013 @05:31PM (#43624439)

    This is a problematic piece because it confuses an extended warranty and accident protection/insurance. Most extended warranties do not include accident protection, and that option tends to cost extra and require the base extended warranty, which is the problematic part. If FourSquare wants to offer cheaper, better extended warranties paired with accident protection, more power to them, but that's a very different thing than an extended warranty alone.

  • No. (Score:0, Insightful)

    by Anonymous Coward on Friday May 03, 2013 @05:36PM (#43624483)


  • Here's the deal... (Score:5, Insightful)

    by msauve ( 701917 ) on Friday May 03, 2013 @05:36PM (#43624487)
    When they sell you an extended warranty, they're doing it to make money. They have a much broader base to analyze, and they're very good at calculating how much to charge vs. how much they'll have to pay out, to end up with a profit.

    It's the same with all insurance. However, unlike life, or health, or car insurance, where there's a low, but finite risk of being out a huge amount without insurance, with product warranties you're out no more that what you've already paid.

    So, long term, no, they're not a good deal. Put the same money in the bank and you'll be ahead on average. Sure, there's risk you can still end up worse off, but not catastrophically.
  • by stanjo74 ( 922718 ) on Friday May 03, 2013 @05:49PM (#43624635)
    Exactly this. For non-catastrophic things, be self-insured. If you can afford to pay for a replacement, pay yourself the insurance premium. The insurance company has already done the work for you to analyze the risk and come up with an insurance premium number.
  • by Sycraft-fu ( 314770 ) on Friday May 03, 2013 @06:01PM (#43624769)

    It is a transfer of risk: You pay a company to assume the risk of a device failing during normal operation. As with any insurance, it is limited in what it covers, and it is more limited than an accidental damage plan.

    As to if they are worth it, well it all depends on your situation. Largely it is if you can afford to replace the device in the event it fails. Insurance is rarely "worth it" in the overall sense. I mean obviously insurance companies have to take in more money, on average, they they pay out or they won't exist. So it comes down to the individual loss: You insure things you can't afford to pay for.

    So in terms of an extended warranty, well if accidental damage is you concern then you'll need something additional. It would be for a case where you have an expensive device that you really can't afford to replace, and do not wish to do without.

  • by Darinbob ( 1142669 ) on Friday May 03, 2013 @06:01PM (#43624771)

    My rule of thumb is that the harder the sales pitch is the more likely it's not a good idea to buy.

  • by Intropy ( 2009018 ) on Friday May 03, 2013 @06:01PM (#43624773)

    The information is asymmetric both ways when accidental damage is covered. They are going to charge enough to make a profit overall. That is true. But if you know you are accident prone, or have kids that break everything, or something to that effect that is covered, and the warranty company does not know that, you can still have an expected positive return.

  • Insurance (Score:4, Insightful)

    by frisket ( 149522 ) <> on Friday May 03, 2013 @06:13PM (#43624901) Homepage
    They're not warranties. They don't warrant anything at all. They're just insurance. Once you get that clear, it's a straight choice on the basis of cost vs benefit. A real warranty penalises the manufacturer for shoddy goods or inadequate service by making them make good the deficit. That is not the case here.
  • by Anonymous Coward on Friday May 03, 2013 @06:57PM (#43625247)

    It makes far more sense to put your own money in the bank to insure your items than to pay someone else to do it. Here's why:

    1. You will be earning interest on the money.
    2. You decide whether an item merits repair or replacement.
    3. You still have the money.

    Consider a scenario where your cell screen shatters.

    If you are insuring your own device, you have a choice to repair the item or use it as is (assuming it is otherwise functional). You might elect to save the money and just wait a few months for the next iteration of phone. In this case, the money you are using to insure the phone can insure the next one too. Or you might choose to repair the item now. It's your choice. And you're earning interest on your insurance money in the meantime.

    If you pay someone else to insure your device, you've already spent the money. Get the item repaired. And hope they don't deny your claim. In either case, you're going to be shelling out to insure your next phone. And they're earning interest on that money.

    The *only* reason to get the extended warranty and/or accident replacement is if you have reason to believe you will come out ahead. For most people, this isn't the case.

    My method is to put the price of the warranty into a savings account. Do this enough times and you end up with a sizable "warranty" account. After the account reaches $1500, I take $1000 of it and put it in a CD. I personally let the interest ride, but you could take it out and put it in your spending account.

  • by Technician ( 215283 ) on Friday May 03, 2013 @07:24PM (#43625473)

    The biggest deal at the moment is the falling prices for older technology.

    Case in point, my 32 inch (yes only 32 inch) flatscreen tv was $800 when I bought it. 6 months later in warranty the sound failed. I took it back to Costco for repair. They didn't repair them, they refund them in the warranty period. Got the refund and picked up another one, same model, on sale for $600. If I would have bought an extended warranty and it failed just outside the manufacture warranty period, I could have gotten a repair on that $600 TV, but now the prices on 32 inch TV's have continued to fall. I took my gamble and didn't buy an extended warranty. If the set dies, a replacement is only slightly more than the extended warranty would have cost.

    In summary. If I don't use the warranty, it costs nothing. If I did buy the warranty, I would have almost paid for a new LED version of my TV with a new warranty for the privilage of having my old CFL tv repaired.

    Frankly I am glad I saved the money. The newer TV's have higher resolution and higher contrast, brighter color, etc than a repaired tv for about the same price would have provided.

    LED 32 inch TV's are about $250 now.

  • by Jah-Wren Ryel ( 80510 ) on Friday May 03, 2013 @07:41PM (#43625599)

    It absolutely might. My wife being a realtor, we've had home warranties over the years and they almost always pay off

    If that were true. the companies selling those home warranties would be bankrupt. It is mathematically impossible for almost all customers to get more money out of their home warranties than they put.

  • by Anonymous Coward on Friday May 03, 2013 @07:59PM (#43625741)

    I am not at all surprised by his anecdote and I think it is true. I know many people with home warranties. Most people I know have abysmal stories and treatment. However, the one person I know who gets good treatment is my cousin who is a real estate agent and his family. Perfect illustration, his parents were having a hard time trying to get something covered with the company fighting them all the way, they complain to their son, who calls the company on their behalf and BAM, someone is there the next day fixing it and they waive the fee. That makes full sense too. After all, it is the real estate agent's job to sell those to their clients. Heck, every time my wife and I looked at a home, our agent tried to sell them. They ethically couldn't sell them, unless they actually thought they were in the client's best interests.

  • by davester666 ( 731373 ) on Saturday May 04, 2013 @01:27AM (#43627303) Journal

    I can't tell, are you happy or angry or sad that your friend blatantly defrauded Sears?

    You don't mind paying a little bit extra for everything at Sears to help him get a new TV and Fridge?

    Or are you more of a "just look out for number one" person [no, I'm not talking about making sure someone isn't pee'ing off the balcony as you walk underneath it]? That it's up to Sears to make sure it's not defrauded, and if you can rip anybody off, you should.

  • by davester666 ( 731373 ) on Saturday May 04, 2013 @01:32PM (#43630095) Journal

    Yes he did lie, twice.

    1, when he cancelled the repair, claiming the fridge was working properly
    2. when he signed up for the warranty, and claimed that the TV was working properly

    Saying it's ok to defraud Sears, because Sears knows some people will defraud it, and so they raise the price to cover this fraud, is, well, childishly stupid and still wrong.

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