Extended Warranties – Buy or Not Buy?

You face a wonderful decision each time you purchase appliances or electronics, and that decision is whether to buy the extended warranty or not.


Inevitably, as the sale is coming to an end, the clerk will ask if you’d like to purchase this extra protection.


Should you buy an extended warranty?


You probably wrestle with these questions running through your mind:


  • Is it worth the price?
  • What if I don’t buy it and it needs replaced or repaired?
  • Is it a waste of money to buy it?
  • If I buy a “better” (refrigerator, TV, laptop, etc.), will I remove the need for the extended warranty?


Pain and pleasure


It is often said more purchasing decisions are made with emotion than with logic. It is also said that people will pay more to avoid pain than to gain pleasure. So, does this mean that by purchasing the extended warranty you are avoiding pain in the event you have purchased a lemon?


Knowing the pain/pleasure concept, retail salespeople are trained to encourage the purchase of the extended warranty. Retailers offer these add-ons not because they feel the products will fail before the normal warranty ends, but because they know the odds are that they won’t. This results in a very lucrative revenue stream.


Buying an extended warranty is like placing a bet


According to Robin Olson, Editor of Personal Lines Pilot, an insurance industry newsletter, buying a warranty is like placing a bet. Basically, you are betting that the product will break down after its stated warranty period. The modest price you pay now is in exchange for a possibly large repair bill later.


Olson writes, “Research suggests that the risk of consumer product breakdowns is quite low. First, most of the major problems with a television, for example, will manifest themselves within the first 30 days — well within the return policy of most stores. Second, Consumer Reports finds the average failure rate for home appliances is rather low. For example, the failure rate for a wide variety of flat-screen TVs is 3 percent during the initial 4 years of ownership. Laptop computers, however, typically experience a poorer track record. The failure rate of a typical laptop is 11 percent for its first 3 years of ownership — still a pretty low percentage.”


Another factor to consider is the future cost of replacement. Technology continues to evolve. Remember how much you paid for your first DVD player? As Olson suggests, “… prices on many types of electronics continue to fall, so when your favorite electronic toy does fail, the cost to replace it might be less than the cost of the extended warranty itself.”


Do you need an extended warranty? This is a question only you can answer. Whether you purchase one or not, be sure to add your new appliances and electronics to your home or business inventory. Having this information always up to date is essential for loss, but other needs as well. One client uses his inventory list as a quick reference when he needs an appliance repaired. Rather than dig out the owner’s manual, or crawl around looking for the number, he pulls up his inventory report which includes the manufacturer name, model number, serial number, and the year it was purchased. All the information he needs is right there for him.