For some time now, when you go into a big box store (e.g., Lowe’s, Costco, or Home Depot) to buy an appliance, they always offer you the chance to buy an extended warranty – it’s part of the electronic checkout process. They are even showing up during Amazon checkouts for even the most mundane products. These plans appear to provide that peace of mind when something goes wrong unexpectedly down the road.
I’ve watched the price of these plans vary from less than $10 to hundreds of dollars, depending on the material. I’ve seen these warranties again and again, and yet time and time again, they manage to leave me dazed and confused, unprepared, and not armed with POWDER right there and then to deal with them. But no more. We’ll have a closer look at those warranties and be better prepared next time they pop up on our screens. We will try to figure this out, or at least come a little closer to answering the modern age-old question: Are extended warranties worth the extra money?
We’ll go over the pros, cons, and what you need to think about to help decide whether an extended warranty makes sense for you.
What Are Extended Warranties?
Extended warranties, also known as protection plans, are optional contracts provided by retailers that extend the period of product coverage outside of the manufacturer’s warranty (which generally extends product coverage for one to two years). These plans can cover repairs or replacements for issues such as manufacturer defects, hardware failures, accidents, or power surges. Some also include extra benefits, such as in-home service or no deductibles.
My Bias – Full Disclosure
But, before we continue, I want to get something off my chest. I have never liked extended warranties. For one, I don’t like feeling as though I’m being pushed to make a relatively significant financial decision at the time of purchase. There’s also that feeling that if I don’t do something about it now, it’ll be too late. Unabashed FOMO – the fear of missing out – here. Second, chances are good I have added one or more of the warranties in the past, only to forget or misplace the paperwork years down the road when I need to get the thing fixed. LOL The last time I tried to use one of these policies, guess what? Yep – surprise, surprise, they won’t cover my specific situation or problem – too bad, so sad. I’m not a fan. But let’s see what we find.
The Case for Extended Warranties
There are situations in which an extended warranty can be worthwhile. For one, they make pricy buys less stressful. When you’re spending $2,500 on a top-of-the-line laptop or $4000 on a high-end, 75-inch OLED TV, the idea of facing an expensive repair bill or a replacement prematurely is downright terrifying.
“For complex electronics that are not easily fixed, extended warranties can be a safety net. C’mon, all forms of appliances/electronics have shorter and shorter lives. I remember my dad’s washing machine that ran for almost 20 years with only a few minor breakdowns. Ultimately, it was removed because it was “too ugly.” But the machines that have replaced the first are lasting much less long.
Second, some plans protect against accidental damage, something manufacturer warranties rarely do. If you’re purchasing a device to be used in a home where children and pets are a consideration, protection against “accidents” might be a material consideration.
Third, also convenience. If you have a busy, crazy schedule- doesn’t everyone (LOL) – you may want to consider a contract for in-home repair, delivery pick up, and replacement. This is particularly the case with large, unwieldy, and heavy items like refrigerators or washing machines.
And some plans do effectively extend the life of your purchase. “If you go back too many times, then you may end up with a new product,” said Samira Saba Muati, a market researcher who has examined retailer warranties and service contracts, a kind of warranty sold separately and often used to extend the time period of a retailer’s warranty. Seek this one out, too, as it can be a valuable bonus with products that have had reliability problems in the past — laptops, for example.
The Case Against Extended Warranties
And despite the positives, extended warranties generally do not provide enough value to warrant their cost. The best argument against these plans is simple arithmetic: the probability of needing a repair might not justify the upfront price. Less than 20% of extended warranty products sold are utilized by consumers.
The cost of these extended warranties is typically 10-20% of the cost of the product. Once you are around 20% of the purchase price and up, it doesn’t make sense to me. I prefer to roll the dice and pay for the repair myself.
Another problem is that these extended warranties tend to duplicate the manufacturer’s coverage — or even the credit card’s. Most manufacturer warranties protect against defects for one to two years. Some credit cards, including American Express, already offer extended warranties. With some good planning and foresight, this may be all the peace of mind you really need — at no added cost.
Some big-box stores, such as Costco, already offer a generous return policy, and specific membership tiers may even come with additional warranty extensions included.
Not all warranties are alike, either. So this is always the one (that) gets me — Plans frequently have fine print that excludes things your pets are likely to do, such as “normal wear and tear.” They never appear to be about what has happened to you. Check the fine print!
And then there is the fact that technology generally outstrips repairing demand. Your device could be outdated by the time your warranty runs out in three years, and you may want to replace rather than repair it. This is also a significant factor in today’s market.
Key Considerations
So, the purchase of a big-ticket item is looming like a thundercloud — or worse yet, you’re at a big-box store and now you’re in that checkout line that never seems to end, and the little screen is spewing out a question about whether you want an extended warranty. How do you decide? Here are a few things to consider:
Reliability of Product: Do you have reason to believe that your brand of product will last a long time? If not, read the product reviews — especially the negative ones. Know why someone in particular had to take the time to write a bad review. And remember that all products will have some bad reviews — it’s a given. But perhaps there’s something more, some pattern or flaw that really would give you pause. Almost always, you will see that many bad reviews are somewhat insignificant things or irrelevant events.
Use and Environment: If the product will be subject to a great deal of use, a warranty for accidental damage may be worth it. For relatively low-risk items such as a desktop monitor, just pass.
Cost vs. Repair Price: Compare the cost of a warranty to potential repair costs. A $50 warranty on a $300 blender may not be worth it if repairs add up to $80, but a $200 warranty for a $2,000 fridge might be worth the expense.
Retailer Reputation: All plans are not created equally. Costco’s warranties, which are supported by Allstate, are usually hassle-free when it comes time to file a claim. However, some users report a more mixed experience from Best Buy’s own Geek Squad. Again, search social media and online reviews for complaints specifically about warranty issues.
Credit Card Perks: Find out if your credit card provides free extended warranty coverage, saving you money on purchasing a separate plan.
The Bottom Line
Extended warranties can give you value in certain instances: expensive, complicated electronics, accident-prone homes, or known-to-be-apple-doomed items. But for most consumers, the numbers don’t work. Since repairs are rarely needed and many people already have protection from the product’s manufacturer, as well as protections offered as a credit card benefit and retailer return policy, these plans are often a waste of money. In most, if not all, cases, you can feel good about politely declining the hard sell at the checkout counter.