Handyman Wednesday: Don’t But the Extended Warranty

Hi everyone, I’ve been plagued with bad luck lately.  In the past 6 months, our dishwasher has broken three times (bought last June), our air compressor has broken once (bought last summer), and just this past weekend, our computer lost its hard drive (bought in November).  There is one upside to this story: everything was under warranty and fixed for free.  The dishwasher required a repairman to come out 3 times (would have cost about $1000 without the warranty), we took the air compressor back for repair (would have cost $70), and the computer repairman replaced the hard drive yesterday (repair cost about $200).  That’s a grand total of $1270 that we would have had to pay if our devices weren’t under manufacturer’s warranty.

Dell_L521x samsung_dishwasher Craftsman_Air_Compressor

Wow, this sounds like a case for buying the extended warranty.  Well, time to look at the other side of the coin.

Rule #1: The extended warranty isn’t the salesperson looking out for your best interest.  This is math.  Some people that work for large retailers or manufacturers get paid a lot of money to make sure that this is a profitable business.  I love Investopedia.  Here’s what they have to say:

Investopedia

“What most consumers fail to realize is that although the price of an extended warranty often seems like a bargain to a consumer who is aware of the steep price of repairs, it has actually been carefully considered through actuarial analysis by the company that offers it. In other words, the company uses probability and statistical methods to calculate the likelihood that your new refrigerator or big-screen television, for example, will require repairs. This figure is weighed against how much those repairs would cost to arrive at the price that a company will charge consumers for a warranty on a particular item. This formula is not designed to work in your favor.”

Rule #2:  Check the manufacturer’s warranty.  Most products come with a 12 month warranty.  If most products are going to break, they do it in the first couple months of use (i.e. all of the cases we’ve experienced in the introduction).

Manufacturers_Warranty

Rule #3: Check your credit card.  My American Express and Jess’ Discover card both extend the manufacturer’s warranty for an additional 12 months for free.  That means I already have a 24 month warranty. I found an article on this exact topic (By the way, AMEX, Visa, and Mastercard don’t cover repairs to your pet…Apparently Discover does).

credit_card_extended_warranty

Rule #4: Electronics depreciate with time.  This means that yes, Best Buy will replace your computer in 3 years if it breaks, but the computer you buy today will be way cheaper in 3 years, so they won’t have to spend very much to replace your computer with the same specs.  Furthermore, if you do need a repair, it may cost less than the warranty cost in the first place…and you could have been making interest on that money (or got the benefit of buying new shoes/tools/plants).

Electronics_Depreciation

Rule #5:  I found this AWESOME table on Investopedia.  This shows how often common products need to be repaired within the first 3 years.

Repair_Rate_For_Electronics

Rule #6: There are still good extended warranties you should buy.  Namely, Apple’s mobile products.  For some reason, Apple products don’t get much cheaper with time and you can get an extended warranty for pretty cheap.  I recommend SquareTrade, but wait until they have a sale.  I’ve been able to get a 3-year iPhone warranty with drops and spills for $54.  Chances are, I’m going to drop or spill on my iPhone during that time, and replacing an iPhone 5 will cost at least $300-$400 for the next couple years.  Replacing a broken screen is at least $100, so I found this to be a decent buy.

squaretrade iphone squaretrade

Let me know if you have an opinion on this topic.  I take the stance: the math doesn’t permit me to buy an extended warranty.  However, I’ll gladly take the free one my credit card offers.

Have you ever been thankful you did buy the extended warranty? Should you believe a chronic liar if he admits that he is a chronic liar?  Many builders refuse to have a 13th floor. Why aren’t book publishers afraid to have a Chapter 11?  What was the best thing before they invented sliced bread?

7 comments

  1. annabelvita says:

    Ooh, good tip about the credit cards! I buy everything on my debit but maybe I need to change that…

    I read somewhere that every time you buy something new you should put the amount it would have cost to buy the warranty in a separate account that should then cover your costs for the things that do break… I don’t do this but it helps keep me philosophical when I do have to spend money fixing things that could have been under warranty!

  2. Jennifer L says:

    I’d say it depends on the item and warranty offered. Sometimes the store warranty covers things, like battery life, which aren’t covered by the manufacturer’s warranty – even the doubled warranty from Discover. For example, 10 years ago I worked at CompUSA and back then the store warranty would cover an iPod’s battery life (manufacturer’s warranty did not cover battery at that time). So if in 18 months your battery life was 50% of the original life (which was pretty much guaranteed back then), we just gave you a brand new iPod in the store, for free, because we didn’t carry an iPod with the old specs anymore. Basically, it was an upgrade plan!

    I love Discover’s double warranty, but I worry about the claims process – other places have just handed us new product that day, or overnighted new product and I can’t imagine it being as fast as that.

    I do love about Discover that they have the 90 day on up to $500 breakage/theft coverage. Depending on the item, I would definitely pass on the warranty and take up my credit card’s coverage on that – something like a camera or a cheaper iPad. iPads seem to have planned obsolescence after a year or so anyway.

  3. Kristen | Popcorn on the Stove says:

    This is a great post! I try to use my AMEX for everything (seriously – I love that darn card) and I’ve always opted out of the extended warranty (even when I bought my car) because it never made sense to me. The only time I didn’t opt out was when it came to getting AppleCare for my laptop, but I feel okay about that.

    • littlehousebigheart says:

      We agree! We have Squaretrade warranties for all our Apple products and because we do a good bit of our car maintenance ourselves (or at least, we can if we need to) we didn’t get the extended warranty on our car either.

  4. Christine @ Casa-de-Christine says:

    Shayne always tells me not to get the warranty too. I did get it for my eyeglasses- it was the frames and lenses for 3 years for anything. I took advantage of that when my puppy chewed them and destroyed the frames. They were completely replaced for free and it was much less to get that coverage than buying new frames and lenses would have been!

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