With all the big ticket items that get purchased this time of year I get a lot of questions from friends and families about extended warranties, especially on electronics.
If you have purchased any major ticket item at one of the electronics stores (Best Buy, Circuit City, etc.) then you have been approached about purchasing a warranty.
These warranties are not a scam but they are also not a good financial decision. The retailers are making huge profits on these warranties and that is why there is such a push to get you to purchase one.
When evaluating whether one of these warranties is actually a good idea I try to get a feel for how an item will be used. Televisions, desktop computers, and anything that is stationary I always reject the extended warranty the retailer is offering.
For portable items like laptops and cell phones I try to take into account who is using the device and what they are doing with it. My wife is very responsible with her stuff, but when we got her a laptop for school she was riding back and forth to class on a bike.
This made the extended warranty a good buy since it covered cracked screens and the manufacturer warranty did not. If she ever fell off the bike and landed on the laptop, we could get it replaced.
Another good example are my two nephews that break just about everything they touch, and a third that is only a year and a half but already shows a propensity toward “figuring things out”. I would probably warranty anything expensive to which they would have frequent access.
The most frequent question I get on these warranties is with the new televisions. Yes, they are expensive, but all the testing shows they are extremely reliable.
Consumer reports and other testing services say that the warranties are a waste of your money because if the television doesn’t break within the manufacturers warranty it isn’t going to.
On top of that the value of these new televisions is depreciating rapidly. Spending extra money on a rapidly depreciating asset just doesn’t make sense (and yet people still buy brand new cars).
If you are still bothered by not having the security of an extended warranty on your big, beautiful, television, I would suggest purchasing the TV with a credit card that doubles the manufacturers warranty (please, have the money to pay it off the at the end of the month; debt is BAD!!).
There are many cards that have this feature. Just check some of the fine print on customer benefits section of your card. This way you get two years to not worry about any defects and by the end of that period your TV won’t be worth the paper the warranty is printed on.
Most Common Extended Warranties
When are Extended Warranties Worth It?
Alternatives to Extended Warranties
Aaron Stroud says
“Spending extra money on a rapidly depreciating asset just doesn’t make sense (and yet people still buy brand new cars).”
I’d agree that paying for an extended warranty doesn’t make sense for vehicles, but some brands depreciate slow enough that the depreciation is fairly minor (Honda & Toyota). Especially when you consider what the previous owner might have done to the engine (skipped or late oil changes, etc).
On top of that, some manufacturers even have cash back offers running now which makes it even easier to choose a new vehicle over a used one.