Extended Warranties & Service Plans. Do they work?

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Dog_Papa
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Extended Warranties & Service Plans. Do they work?

Post by Dog_Papa » Sat Nov 10, 2012 2:04 pm

I'm wondering if any member has an idea if these work for people or not really. It depends I'm sure of the type of product you're buying. That
is for sure one major factor. Electronics have such rapidly changing technology, that a plan longer than about 2 yrs is very questionable. In
automotive, the technology doesn't change as fast and they make more sense.

I'm considering a refurbished electronic product from Walmart. It's a lot less expensive, due to being a refurb. I could by the extended warranty for
say two years. The regular 1 yr warranty is only 90 days on refurb electronic products. Usually if it lasts a yr, it will then go 5 or more. It will then
be obsolete anyway. Some of the language in those plans has always perplexed me, it often seems contradictory. That may in some cases be willful,
at least in my view.

Anyone have any ideas or maybe a web site that scrutinizes these plans?

protagonist
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Re: Extended Warranties & Service Plans. Do they work?

Post by protagonist » Sat Nov 10, 2012 6:19 pm

If they sell extended warranties, they must make a profit from them.

If they make a profit from them, the odds are stacked against you.

So if replacing your computer (or anything else) in the worst case scenario is not going to cause you significant financial hardship, my recommendation would be to avoid the extended warranty/service plan.

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Re: Extended Warranties & Service Plans. Do they work?

Post by sport » Sat Nov 10, 2012 6:22 pm

Many credit cards will automatically double a factory warranty up to one year. This type of warranty extension has no cost.

Jeff

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Re: Extended Warranties & Service Plans. Do they work?

Post by nisiprius » Sat Nov 10, 2012 6:59 pm

Consumer Reports just addressed this in their December 2012 issue, p. 16. The title of the article is:

Resist the extended-warranty pitch.

They do suggest that "if you buy a laptop that will be carried around, a type of service plan that covers accidental damage might be worth considering."

I don't buy extended warranties on the theory that you should only buy insurance if the insured-against event would be a serious financial problem. Having to replace a $250 or $700 electronic gadget is a nuisance, not a financial disaster, and it is exactly the sort of situation for which "self-insurance" is appropriate.

I learned my own lesson about extended warranties in a particularly stupid way. When my CD player quit working, I took it to the Panasonic repair depot, where it took them six weeks to fix it and they charged me $75. When I got it back, as I was fumbling around the back of the shelf where I put it, I discovered a scrunched-up copy of a three-year extended warranty I had bought and forgot about. Got that? By the time the failure occurred, I'd forgotten I had the warranty. :oops: :oops: :oops:

(With respect to cars, I believe I've heard it expressed that the carmaker's own extended warranties may be worthwhile, but the third-party warranties are not).
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Re: Extended Warranties & Service Plans. Do they work?

Post by LazyNihilist » Sat Nov 10, 2012 7:09 pm

I agree with the above posters that 3rd party warranties are most likely not worth it.

But recently I bought a gadget on Amazon for $500 and it had a manufacturer warranty for 1 year. There was an option for 2 more years of extended warranty by a third party for $60. I thought long and hard and finally bought the 3rd party insurance. My gut says it is worth it, my brain says it is not worth it. Only time will tell if it was worth it.
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Re: Extended Warranties & Service Plans. Do they work?

Post by nisiprius » Sat Nov 10, 2012 7:39 pm

LazyNihilist wrote:I agree with the above posters that 3rd party warranties are most likely not worth it.

But recently I bought a gadget on Amazon for $500 and it had a manufacturer warranty for 1 year. There was an option for 2 more years of extended warranty by a third party for $60. I thought long and hard and finally bought the 3rd party insurance. My gut says it is worth it, my brain says it is not worth it. Only time will tell if it was worth it.
Right, it's like the collision damage waiver on a rental car. The other day I was renting a car I needed for a day, for $60. The rental salesman says, casually, "It's only $19. A lot of people do get them particularly if they have like a $500 deductible on their car insurance." In fact I have $1000 deductible, and you know, for a moment there, I was seeing "$19" and "$1,000" floating like little thought balloons, and I almost went for it. Spend $19 to protect myself against a $1,000 liability, sounds reasonable.

They get you because the cost of the coverage itself is below your "threshold of budgeting" and the cost of repair or replacement is above it.

Then I thought, well, I've had one collision in twenty years, it cost $2,000, so the $1,000 deductible means my risk is not "$1,000", it's "$1,000 per twenty years." $19 a day for twenty years = $138,700. Or, conversely, $1,000 over twenty years is $0.14 per day. In other words, $19 a day is more than 100 times as much what the protection is worth.
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Re: Extended Warranties & Service Plans. Do they work?

Post by Saving$ » Sat Nov 10, 2012 8:56 pm

jsl11 wrote:Many credit cards will automatically double a factory warranty up to one year. This type of warranty extension has no cost.

Jeff


+1
This is my extended warranty plan.

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Re: Extended Warranties & Service Plans. Do they work?

Post by LadyGeek » Sat Nov 10, 2012 9:53 pm

Dog_Papa wrote:The regular 1 yr warranty is only 90 days on refurb electronic products. Usually if it lasts a yr, it will then go 5 or more. It will then be obsolete anyway.

There's a reason refurb warranties are 90 days - something failed, so what else is wrong that they didn't find the first time? All bets for lasting a year or more are off.

If the extended warranty truly extends the full manufacturer's warranty on a refurb, and the cost difference is significantly less than buying a new product, then go for it.

On the credit card double-your-warranty programs, check the card's policy to be sure it includes refurb products. In this case, I would assume you get 180 days vs. 90 days.
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Re: Extended Warranties & Service Plans. Do they work?

Post by jeffyscott » Sat Nov 10, 2012 10:12 pm

LadyGeek wrote:On the credit card double-your-warranty programs, check the card's policy to be sure it includes refurb products. In this case, I would assume you get 180 days vs. 90 days.


I have never seen one that does, I think they explicitly exclude things like that. Also they only extend manufacturer warranties, with refurbished products the warranty may not be from the manufacturer.
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Re: Extended Warranties & Service Plans. Do they work?

Post by thomasbayarea » Sat Nov 10, 2012 11:22 pm

Any insurance product is designed to be profitable to the underwriter. The odds are that you will lose money. So if you want to buy an extended warranty, buy it for the peace of mind, but don't expect to profit from it.

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Re: Extended Warranties & Service Plans. Do they work?

Post by nisiprius » Sun Nov 11, 2012 8:08 am

If you're counting on your credit card, read every fine-print notice you get, or call occasionally to verify the warranty extension is in place--it's something that card companies play games with, adding the feature to draw people in and quietly dropping or gutting it later.

What have been people's experiences with actual claims on credit card warranty extensions? I've never made one.
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Re: Extended Warranties & Service Plans. Do they work?

Post by LadyGeek » Sun Nov 11, 2012 10:39 am

I've used the extended warranty, twice. You need to get authorization prior to the repair, which needs an estimate. I don't remember if I had to front the money up first and then I was reimbursed, or the payment went directly to the repair shop. It takes time to go through this process, like any claim would do.
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Re: Extended Warranties & Service Plans. Do they work?

Post by scubadiver » Sun Nov 11, 2012 11:38 am

Think of an extended warranty as an insurance plan.

One buys insurance to cover against random and catastrophic financial loss such as that due to the unexpected death of a primary bread winner or the loss of a home due to fire. These are random events that are unlikely to occur for any one family / individual but if it did happen it would be a financially devasting event without insurance coverage.

Back to the extended warranty. While the premature malfunction of your new electronics product might well be random, if having to pay for the repair or replacemet out of pocket represents a financially catastrophic event you might want to consider whether or not you can trully afford this item.

I never buy these extended warranties and if it ever comes back to bite me I cover it out of pocket and think of all the money I saved on those numerous other purchases buy not buying the warranty.

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Re: Extended Warranties & Service Plans. Do they work?

Post by Sam I Am » Sun Nov 11, 2012 12:31 pm

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Re: Extended Warranties & Service Plans. Do they work?

Post by sport » Sun Nov 11, 2012 1:57 pm

nisiprius wrote:What have been people's experiences with actual claims on credit card warranty extensions? I've never made one.

I have made claims twice. The first was a computer hard drive failure about twenty years ago. I had to send the failed drive to the credit card company. I was concerned about the data on the drive, and spoke to the tech person who would handle it. After talking to him and expressing my concerns, he said all the right things and I was sufficiently comfortable to send the drive. Between the time I had purchased the computer and the drive failed, new larger drives were available at a small cost increase from the original size. I negotiated a larger drive than the one that had failed by agreeing to pay the difference in price. IRRC, the credit card company paid for the repair and I had a charge entry for the difference. The second was a failed I-Pod a few years ago. I had to send the failed unit and a purchase receipt to Amex and they put a full credit on my statement.

Jeff

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Re: Extended Warranties & Service Plans. Do they work?

Post by protagonist » Sun Nov 11, 2012 5:11 pm

Anacdotes of those who "won" are irrelevant....the odds are stacked against you. An analogy for you finance types: Would you invest in a mutual fund that charges a 1% annual management fee with a manager who has consistently lost 1-2% per year over the past twenty years, even if you might win next year?

I take the same approach to insurance....only insure against losses that would be catastrophic and accept the highest deductible possible. For the same reasons...the odds are, in the long run, my money would do me more good in the stock market or even in the bank or under my pillow. The one exception....when I was living (and had my car registered) in a small town in W. MA with low auto collision/comprehensive rates and working, and doing most of my driving, in Boston. I figured I might come out ahead. But I didn't.

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Re: Extended Warranties & Service Plans. Do they work?

Post by 4stripes » Tue Nov 13, 2012 12:09 am

What if every time you thought you would buy an extended warranty, you instead put half that cost in an "extended warranty" savings account? I'm sure by the time something broke, you'd easily be able to replace it. But it's an idea I've never tested because I don't buy warranties.

If an electronic product doesn't break in the first 3 months, it will probably last a while.

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Re: Extended Warranties & Service Plans. Do they work?

Post by Dog_Papa » Thu Nov 15, 2012 3:15 pm

It's interesting to read all the experiences people have had. Often the commission paid to the sales person is so high that there is no way
it can make sense for the consumer. The other major problem with electronics, is the product maybe covered but's still obsolete when it does
go bad. Also, many of the companies who sell these things then go under, leaving buyers holding the bag. They are kind of like successful
failures. Before 2008, if buying a big 3 auto, it may have made sense. I think they still honored the ex warr after the bankruptcy, in this one
case. But usually if the company goes down who wrote the ex warr, the consumer is stuck.

I think if a credit card excludes refurb electronics, that's a big hint not to buy refurb stuff. It is for me anyway. I did not know about that!

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Re: Extended Warranties & Service Plans. Do they work?

Post by Professor Emeritus » Thu Nov 15, 2012 4:50 pm

I've taught warranty law for over 35 years now. I only buy extended warranties on
1) products for which no fair "repair market" exists. e.g. my hearing aids.
2) products where my risk is much higher than average (You don't what to know what I've done to laptops.)
3) American cars. I negotiate hard on the warranty and simply consider it part of the purchase price.

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Re: Extended Warranties & Service Plans. Do they work?

Post by JupiterJones » Thu Nov 15, 2012 5:26 pm

Dog_Papa wrote:I'm wondering if any member has an idea if these work for people or not really.


Depends on your definition of "work".

They work pretty well at giving some people peace of mind. If the regret you would feel for not having bought the warranty if something went wrong is greater than the regret you would feel for having bought it if nothing ever goes wrong, then I guess it would "work" for you.

But financially, extended warranties do not work. I never buy them.

They're basically side bets. And side bets are always sucker bets, otherwise the house wouldn't offer them. :D

JJ
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Re: Extended Warranties & Service Plans. Do they work?

Post by rjbraun » Fri Nov 16, 2012 12:39 pm

I only skimmed the responses and don't think I saw a direct reference to "convenience" as a justification for buying extended warranties and service plans. My sister gave this as a reason and counter to the basic argument of only insure what you can't afford to replace on your own. Her reasoning was that, while she can spring for the cost of a new phone or whatever, the hassle of transferring over all the data and whatnot is a nuisance she doesn't have time to deal with. Hence, she figures the cost of the service plans are worth it, to be able to basically hand her broken device to someone and return the next day (or whatever) to have everything taken care of (let's hope). While I'm not sure I would make the same decision I thought she had a valid point

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Re: Extended Warranties & Service Plans. Do they work?

Post by jeffyscott » Fri Nov 16, 2012 5:56 pm

But for most things, it is not more convenient to have a service plan, it is easy to just have money. For example, my car is broken so I go to the car repair shop and say: "I have money, fix my car". It seems to me that if I have a service plan, there is potentially more hassle.
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Re: Extended Warranties & Service Plans. Do they work?

Post by grabiner » Fri Nov 16, 2012 9:52 pm

rjbraun wrote:I only skimmed the responses and don't think I saw a direct reference to "convenience" as a justification for buying extended warranties and service plans. My sister gave this as a reason and counter to the basic argument of only insure what you can't afford to replace on your own. Her reasoning was that, while she can spring for the cost of a new phone or whatever, the hassle of transferring over all the data and whatnot is a nuisance she doesn't have time to deal with. Hence, she figures the cost of the service plans are worth it, to be able to basically hand her broken device to someone and return the next day (or whatever) to have everything taken care of (let's hope). While I'm not sure I would make the same decision I thought she had a valid point


You can do that just as well without the warranty; if it is a service that you would have to pay for separately, then the cost of that service is effectively included in what you would have to pay for the warranty. But I wouldn't expect there to be a charge, as it's a simple process; when I bought my last phone, the phone store transferred my data from the old phone as part of setting it up.
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Re: Extended Warranties & Service Plans. Do they work?

Post by Watty » Fri Nov 16, 2012 10:22 pm

One thing that I have not seen mentioned is home warrantees.

One came with our house that was worse than worthless. We had to use it about three times and the repair work they did was minimal and shoddy. After the warranty expired we ended up paying to get repairs or replacements for all the work they did.

I have heard similar complaints about third party car warrantees.

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Re: Extended Warranties & Service Plans. Do they work?

Post by maroon » Fri Nov 16, 2012 10:59 pm

I bought a house that had a really old air conditioner, so also purchased a home warranty (seller paid for half of the warranty). When my air conditioner died in the middle of a heat wave, it was a HUGE, HUGE, HUGE hassle dealing with the warranty company. But eventually the warranty company agreed to a payout of - I think - maybe $3K or so. I can't understate what a total pain it was to deal with the home warranty company, but it was worth it.

Also, I once bought an older Honda which came with a Honda Care warranty (transferred from the previous owner). I ended up appreciating the warranty when my Honda needed a ~$600 repair. There was literally no hassle or extra paperwork, I just took the car to the dealership and the dealership handled the warranty claim. So when I sold that Honda and bought a brand-new one, I opted to get the Honda Care warranty, just shopped around for the best price.

In my experience, the extended warranties work, though there's varying degrees of hassle/inconvenience involved in utilizing them. Whether they're worth it or not - well, won't know that until later. I tend to like the peace of mind of an extended warranty when buying a large ticket item. I tend not to buy extended warranties on cheap items, though I uncharacteristically bought an extended warranty on a couple of office chairs and both chairs fell apart during the extended warranty period.

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Re: Extended Warranties & Service Plans. Do they work?

Post by af895 » Thu Nov 22, 2012 2:28 pm

I generally don't buy extended warranties but do pay for large items with a credit card that has extended coverage.

My spouse has availed herself of VISA's extended coverage and it has replaced or repaired items with little to no fuss.

One item I did spring for the extended warranty on: a washing machine. Why?

Water + electricity + heat + vibration + chemicals + dirt/debris = huge amounts of wear and tear.

Sure enough, the machine ingested a foreign coin which punched a hole in the pump. A $300+ repair was done for free under the extended warranty.

I realize the plural of anecdote is not data. I use this one to illustrate there are some items for which it may make sense to buy the extended warranty.

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Re: Extended Warranties & Service Plans. Do they work?

Post by JupiterJones » Fri Nov 23, 2012 12:08 pm

CJOttawa wrote:Water + electricity + heat + vibration + chemicals + dirt/debris = huge amounts of wear and tear.


But if that huge amount of wear and tear statistically led to a certain failure rate, with a certain associated repair cost, the price of the warranty would already reflect that.The increased likelihood of a product breaking does not, in and of itself, make the warranty a good strategy.

It is pretty common to hear things like "Yoyodyne laptops have sensitive components and are expensive to fix, so it makes sense to always buy the extended service contract." Well, maybe they do break a lot. But guess what? The entity selling you the warranty knows this too.

In fact, they know it better than you, and they're probably armed with spreadsheets of statistics to back them up. They, of course, will simply charge accordingly so that they still make money (which means that you, the average user, would be expected to lose money).

JJ
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