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When does it make sense to buy the extended warranty, if ever?

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AUTHOR: Jonathan Clements on 3/20/2021
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Michael Hennessy
10 months ago

I’ve never bought an extended warranty and never intend to buy one. I figure that’s saved me hundreds, probably thousands, of dollars over the past fifty years.

Kathy C
10 months ago

NEVER. Most credit cards extend the manufacturer warranty up to one year longer (typically double what is stated up to 1 year.)

Rob Jennings
10 months ago

I never bought one in my 66 years of life. Until this year when I bought a giant rolling new computer-a new car that is helluva lot smarter than I am. Even though it has a strong warranty the electronics are not covered past 3 years and I intend to keep the car long term. So I shopped around, negotiated and bought one.

Frank Stanford
1 year ago

Extended warranty discussions usually elicit strong opinions on both sides. It’s a risk/cost thing. The risk of repair cost vs the cost to buy it. These warranties are simply a form of insurance, and in the end, most buyers would have been better off without it. The same is true for homeowners, life and auto insurance. Statistically, we’d be better off without it, yet most of us buy it anyway. For what it’s worth, I’ll share three bits of advice:
(1) If purchasing an extended warranty gives you peace, and you’ve got the money, buy it. There are much worse ways to spend your money than buying peace of mind.
(2) Buy it from the manufacturer, or for a vehicle, either from the manufacturer or from a third-party recommended by your mechanic who will know the good ones from the bad ones
(3) Lastly, for some brands of vehicles, you don’t have to the buy the manufacturer’s warranty from the same dealer that sold you the car. You can buy from any dealer, even one 2000 miles away. Shop around. This can save you big $$$ as some dealers over-charge greatly.

corrupt
1 year ago

I usually don’t go for extended warranties, but I did buy one on a vehicle I knew I would be putting miles on far in excess of normal miles. It worked for me in this case.

Brian Valentine
1 year ago

Never

Kevin Rees
1 year ago

On gas grills from Lowe’s or Home Depot. Living in south Texas we grill outside 12 months a year. Living near the coast those grills tend to corrode badly. I buy the extended warranty from the big box on the grill and collect on it virtually every time (after 2-3 years when it burns out).. Haven’t paid for a grill in 10-15 years, just the cost of the new warranty on the new replacement grill they give me.

Martin McCue
1 year ago

What you are buying is usually peace of mind, and sometimes convenience.

Once in a while, I’ll buy the extended warranty for a piece of electronics, if the price is really low, just because those things randomly break and I’ll just want to replace it quickly at the dealer.

The only thing I can say I’ve been willing to spend more money on is the extended warranty for my laptops, because they usually come with some valuable extras, like next day service and even at-home service.

batperson
2 years ago

As someone who was closely involved with the marketing of extended service plans I can state unequivocally that these plans have high profit margins and are extremely lucrative for the underwriters, distributors/dealers and salespeople. Most auto dealerships have an unwritten rule that a salesperson must sell the extended warranties to at least 70% of their customers. Salespeople in any industry are under tremendous pressure to sell these services; the pressure is passed on to the customer. I have read that less than 20% of extended service plans are ever used. If a plan is carefully analyzed – the upfront cost, deductibles, mileage and time limits, exclusions, it becomes very apparent that a customer is much better off escrowing the premium in a savings account and using it for unexpected repairs. Even some of the self described customer centric national used car chains shamelessly push these rip off plans.

Randy Starks
1 year ago
Reply to  batperson

In a word: EXACTLY!

William Dorner
2 years ago

Married 54 years. When I was 21 somehow I figured out warranties for an extension was like insurance I did not need. As an engineer most things that are going to fail, will fail in the first one to three months. If the manufacturer gives you a one or two year warranty that should suffice for most any item. Buy from a reputable company and they will always back up their warranty. Now 54 years later, less than 2 or 3 times I needed an extended warranty, and with all those savings, it was very easy to cover the 2 or 3 times. Lesson learned, do not buy any warranties, unless you have a very good reason, like a cell phone warranty for your clumsy self or child. Rarely you need any warranty. Guaranteed saving over a lifetime.

Greg Siwicki
2 years ago

When buying a treadmill, I will get the 5 yr warranty entension. I use the treadmill often as well as my wife and can almost guarantee I will need repairs within that timeframe.I have saved hundreds of dollars over time.
So I highly recommend this unless you hardly use your treadmill.

Moesha
2 years ago

Sometimes, when buying a car.
To make the most money, dealers will “balance” their costs and yours. For example, a vehicle price may be lower, but the finance rate higher at a dealer; and the opposite true elsewhere. Knowing this, you look at the “big picture” in terms of cost. Adding in the cost of an extended warranty as a third “bargaining chip” can improve the big picture sometimes; such as when when the finance rate has been eliminated because you’re paying cash. By doing this, I purchased a “$3000” 6-yr 120k mile extended warranty on a used (demo) Honda for $420. Two transmissions later, I’m glad I did.

Jeff
2 years ago

Never

Kyle Mcintosh
3 years ago

The only one I’ve picked up in the last few years is a two-year warranty on my 14-year old son’s laptop. I sleep better at night knowing that if he spills on it or if he drops it we are covered. It was about 20% of the purchase price (which I know is not good from a financial standpoint), but I’ve forgotten about that outlay and like the fact that it’s fully covered (except for theft).

johntlim
3 years ago
Reply to  Kyle Mcintosh

If you are a Costco member, use the Citibank Costco Visa and double your already generous 2 year Costco warranty on computers.

Roboticus Aquarius
3 years ago

Never, from the standpoint of getting value on your purchase.

The exception involves any circumstance where you think the need is high and the alternatives poor… i.e. the price of the product is material to your wealth, and the price of the warranty is no more than 10% of the price of the product, and breakdowns tend to be substantial in scope.

We have purchased extended warranties perhaps 5 or 6 times in the 25 years since we married. Unless my memory fails me, we haven’t utilized any of them.

OldITGuy
1 year ago

I think you nailed it. I rarely buy the warranty, but 30 years ago as a young single earner family I bought the extended warranty (pretty much for the reasons you mentioned) on a used mini-van as I was concerned about repair costs. Turns out it was a lemon and the chrysler warranty paid off about 5 fold over the time I owned that van. I didn’t buy the cheaper 3rd party warranty, but went with the warranty offered by the manufacturer. They honored the warranty without question again and again and again and …

johntlim
3 years ago

Agree with Roboticus.

rayanmiller6303
3 years ago

I understand the conventional wisdom that you shouldn’t purchase a warranty and never use to purchase them.

Now I almost always do for things that I buy on amazon especially any that are made in China.

WHy?
I find myself frustrated when the 150$ coffee maker breaks after 18 months when I know they should last 5 years. Yes I can easily afford another but rather than be upset at the state of the quality be hoisted on us and eventually filling the landfills I smile when I get my money back for the 3-4 dollars it cost for the warranty.

Jackie
3 years ago

Never. In addition to the fact that the insurance product is designed to be profitable for the insurance company, and thus unprofitable for you, there is the added fact that many of the companies offering the warranties are not very ethical. My brother has bought several of these types of warranties for both home and car and he has spent many, many, hours trying to collect on legitimate claims. This added cost in time and aggravation just makes extended warranties that much more of a bad deal.

medhat
3 years ago

Normally never, and of course just found the exception to the rule. Helped my daughter purchase a new car (new car purchases should be an entirely separate topic!), and on top of this a new car in its first production year. Although I was fully supportive of her choice, I think there was a greater-than-average risk that there could be something amiss beyond the normal expected interval. Icing on the cake was that the manufacturer was offering the extended warranty at a discount ($1000 off, it seemed a solid deal). Then if that weren’t enough, I wrapped the cost into the 0%, 0 down financing, so all in all I think we’ll all sleep better.

Cindy Schreiber
3 years ago

Warranties on products likes cars and fridges are designed (from experience) to cover the time frame where their company statistics say you won’t need it. Hence come the extended ones. However most extended warranties I have found are also timed to not be needed.

I have found the extended ones are mathematically designed by the actuaries of the products universe. Even the extended times are calculated to bring maximum profits to the company. For example there is a reason a car extended warranty will take the usual 3 years to 6 or 7 years because statistically speaking (and the companies know to the date, don’t be fooled) only extend to 5 years or 7 years.

5 years when the company knows most claims will start in the 6th .. 7 years when the company knows most claims will start in the 8th .. never forget there is actuarial science behind all warranty products.

Last edited 3 years ago by Cindy Schreiber
BenefitJack
3 years ago

I never buy the extended warranty on a product, except …

Twenty-five years ago, a Japanese insurance executive asked me whether I felt responsible for workers who made mistakes or failed to take full advantage of our 401(k) plan. Back then, I felt comfortable asserting that workers were responsible for their own decisions.

Since then, behavioral economics studies, litigation, legislative and regulatory changes “moved the goalposts” — prompting me to add automatic features and installment payments and to encourage “asset retention.”

Today, many plan sponsors encourage rollovers into their 401k plans and many “actively encourage participants to keep assets in the plan at retirement.”  In my last role as a plan sponsor, we solicited and accepted all rollovers (at hire, while employed, post-employment, too); we changed the default at separation to keeping assets in the plan, and we made changes (like electronic banking) so individuals could not only continue to make loan payments, but they could also initiate a loan after separation (if only as a way to avoid leakage). In fact, as is the case at most employer-sponsored savings plans, the vast majority of participants will be the term vested – not the active nor the retired employees. 

My spouse Debbie and I expect to be lifetime participants in that plan, until the second of us dies.

The plan’s fiduciary protections and design defaults serve as an “extended warranty.” The value almost always exceeds the cost because:
• Separated participants are already very familiar with the plan, a few have 50 plus years of experience,
• There are about 50,000 participants with about $5 Billion, many have a lifetime of savings and watch fiduciaries very closely,
• There is a guaranteed investment contract paying approximately 3 percent,
• Separated participants can access money on demand — either as a withdrawal or as a loan, and
• Administrative and investment costs are very low due to plan design and economies of scale.

Many retirees lack the expertise to manage a lifetime of savings. “(M)any older respondents are not financially sophisticated: they fail to grasp essential aspects of risk diversification, asset valuation, portfolio choice, and investment fees” (Study by A. Lusardi, O. Mitchell, V. Curto). “The prevalence of dementia explodes after age 60 … the diagnosis of cognitive impairment without dementia is nearly 30 percent between ages 80 and 89. … in studying financial mistakes (suboptimal use of credit card balance transfers, mis-estimation of the value of one’s house, excess interest rate and fee payments), (we) find that financial mistakes follow a U-shaped pattern, with cost-minimizing performance occurring around age 53” (Study by S. Agarwal, J. Driscoll, X. Gabaix, D. Laibson).

Retirees may also be financially vulnerable (M. Lachs, S. D. Han).

So, upon reaching age 70½, 18 plus years after one estimate of peak financial cognitive capability (study by S. Agarwal, J. Driscoll, X. Gabaix, D. Laibson), we require retirees to make a payout decision regarding a lifetime of retirement savings.

Perhaps unknown to most participants, the “extended warranty’s” best value may be the fiduciary protections, as well as operational and design defaults. There is also bankruptcy protection.

Fiduciaries are often “prudent experts.” They are required to act solely in the best interest of participants, to carefully select and monitor the investments
and the administrators. 

Importantly, a plan’s “extended warranty” may be even more valuable throughout participants’ retirement/payout years.

BenefitJack
3 years ago
Reply to  BenefitJack

Upon reaching age 72, not 70 1/2. I forgot about the SECURE Act change… BenefitJack

Thomas
3 years ago

For me, probably never. Warranties are priced the same as insurance: the expected value for the purchaser is negative. Unlike with a home or my health, the cost of replacing items you can purchase warranties for is not stratospheric. I would only purchase a warranty if I believe I have a much higher probability of damaging an item than the average consumer. But I’m a pretty cautious person, so that’s almost never the case.

John M
3 years ago

If your purchase has a lot of moving parts, is expensive, and the warranty covers those parts with little wiggle room… or else you are buying for someone whom you know is challenged when it comes to treating such purchases with appropriate care… then an extended warranty can make sense.

In 30+ years since college, I think I may have purchased 2 or 3 extended warranties.

Dennis Friedman
3 years ago

I never bought an extended warranty and I don’t want to. I get a lot of unsolicited phone calls from people who are trying to sell me an extended warranty for my car. They are constantly pestering me. Why? Because they make a lot of money off these types of policies. They are overpriced. I think the best thing to do is try to buy a reliable car and maintain it by following the recommended maintenance schedule.

Randy Starks
1 year ago

Oh, you mean a Toyota or Lexus that produce vehicles that are safe, fuel-efficient, practical, and dependable. Reliability is high for these two brands.

David Powell
3 years ago

This is another way keeping cash on hand can save you money in the long run. I will pop for one only when it buys faster service on something that matters to me or my spouse, or when it takes hassle out of getting a repair or replacement.

Joe Kesler
3 years ago

I have watched my daughter drop her phone and break it so many times I make an exception to my normal rule to never take an extended warranty.

Randy Starks
1 year ago
Reply to  Joe Kesler

Buy an OTTERBOX case and see if that helps. Less than forty bucks.

Last edited 1 year ago by Randy Starks

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