Are Extended Warranties Worth It?

Do extended warranties make sense? You probably have been in that situation before. You have researched and researched a certain item that you want to buy. You finally figure out the make and the model number and you are ready for purchase. You talk to the salesperson, check availability, and get ready to pay.

The whole time you know the dreaded question is coming. “Are you interested in an extended warranty today?” Let me show you how it works. If you have a real aggressive salesperson, then the benefits might be a little exaggerated. Maybe there is a claim of replacement no matter what. In any situation, no questions will be asked and your product will be replaced. Of course, if you read the fine print, you would get a different story.

The problem is one of emotion. Emotions get in the way. You start picturing your brand new item having a problem or getting damaged. You think about the cost. Then you rationalize that it is probably better to not risk it. You see it is human nature to do anything to avoid loss and the salespeople know that to be true.

Retailers bank on that emotional response. The last numbers that I saw suggested that extended warranties are a 15 billion dollar industry where maybe 20% is paid out in claims.

What do the experts say? In the majority of cases, the consumer advocates advise to say “no” to extended warranties. It is just not worth the money. Here are a few points to consider before you say “YES” to an extended warranty.

- How good is the original warranty on the product? How is the extended warranty in conjunction with the original warranty?
- How does the fine print compare to what the salesperson is telling you? Some retailers still pay out commissions for an extended warranty sale. Have them back up their claims with a look at the fine print.
- What is the hassle factor associated with getting something fixed? How long will you be without that product?
- What do reliability ratings say about the product that you are purchasing? If the reliability ratings are high, why even insure a low probability event?

If you really feel strongly about having that added protection, make sure that you do the following:

- Take some time to really study the fine print and understand the terms and conditions
- Create a file to store the receipt and a copy of the extended warranty
- Really evaluate if it is worth the cost and if this is an emotional decision being influenced by an aggressive salesperson
- In most cases, you can always go home and think about it then add it on the next day

I have to admit that I have wasted more money on these warranties in my life and rarely have had to use them. Most of the time, failures in electronics will show up early on during the original warranty. I have also found that the hassle factor is just not worth it.

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