life insurance vs extended warranties

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bb
Posts: 325
Joined: Wed Apr 25, 2007 10:04 pm

life insurance vs extended warranties

Post by bb »

The general consensus is extended warraties are not a good deal. General
wisdom is manufacturers make money on the agreements so a consumer
would be better off not buying them.

Wondered to what extent this is similar with life insurance. Companies price
the policies knowing they will make a profit.

To what extent is insuring a product similar/dissimilar to insuring a person?
avalpert
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Joined: Sat Mar 22, 2008 4:58 pm

Re: life insurance vs extended warranties

Post by avalpert »

The difference is most people can afford the financial loss when their appliance dies while most cannot afford the financial loss of the death of the breadwinner.

Sure, your expected return on life insurance is negative - and most people truly hope they lose money on it - but the potential downside is too great a risk to take. You need to consider magnitude of loss in addition to likelihood of occurrence when managing risks.
adamthesmythe
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Re: life insurance vs extended warranties

Post by adamthesmythe »

You buy life insurance in case of a loss you can't afford out of present assets. Usually, loss of a breadwinner's salary or a homemaker's work. Most of us can afford to repair a refrigerator, air conditioner, etc. or replace a disposable appliance.

The profit on life insurance is pretty certain because statistical lifespans are very well known. That, and competition between suppliers, probably keeps profits relatively modest.

I'm not sure why we get posts that act like it's somehow unfair for a supplier of a product to make a profit. Their profit is my cost for something I can't or don't want to do for myself. We should complain only about unfair, unreasonable, or fraudulently obtained profits.

So buy life insurance if you need life insurance. Buy extended warranties if a modest unexpected bill would really mess up your finances.
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JoMoney
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Re: life insurance vs extended warranties

Post by JoMoney »

It's not bad because companies make money on them, if that was grounds for not buying something we wouldn't buy any commercial goods and services. When people trade though, the idea is that it's win-win, the seller feels they got a good deal at the price they sold (which may include a 'profit'), and the buyer feels they're getting at least equal value at the price they paid -otherwise the transaction wouldn't happen, a deal wouldn't be made. At least, that's in an ideal market where there's lots of competition between buyers and sellers to match up with, and nobody is forced to transact. When you're buying insurance, it's not expected to be an 'investment', hopefully you feel transferring the risk to someone else offers adequate value to you.

As others have said, insurance is to protect you from a loss that would be unbearable. In the case of most consumer goods, you should probably re-think your need to purchase it if the replacement cost is unbearably expensive to you. Things like houses and automobiles are often an exception, and most people buy insurance on those. If you're buying a super expensive appliance or consumer good that you can't live without, it may be a rare exception where insurance is worthwhile for you, but there are some things to keep in mind:
Most 'warranties' are not really 'insurance'. They will only cover a manufacturers defect not negligence, accidental damage, or disaster.
The 'mean time between failure' for many products can be misleading, in many cases items that are defective will die much quicker, and items that had no defect and were properly cared for will go much longer.
You're likely already covered for some initial period (often a couple weeks) to return defective items to the store.
The manufacturer may already offer a warranty that extends past the stores return policy.
If purchased with a credit card, the cc may offer protections on it.
If you have a home/renters insurance policy, it may cover some types of loss.
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Kenkat
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Location: Cincinnati, OH

Re: life insurance vs extended warranties

Post by Kenkat »

If your TV breaks, you buy a new TV. If you die, your family might starve and go homeless.

Insure against catastrophic events and cover mundane events out of pocket is the general advice.
randomguy
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Re: life insurance vs extended warranties

Post by randomguy »

kenschmidt wrote:If your TV breaks, you buy a new TV. If you die, your family might starve and go homeless.

Insure against catastrophic events and cover mundane events out of pocket is the general advice.
If you die, you spouse gets a new one. Just like a TV.:)

Extended warranties can be a good deal if you have more knowledge about the situation. Apple prices applecare assume normal use. I know mine is being used by a 10 year old. I might win out. Tire rack assumes normal usage. I know I am in a construction zone with 4x the normal number of nail punctures. Again I might come out ahead. On the other hand some of the warranties are crazy. Do you really want to pay 5 bucks to insure a 15 dollar cable?:)
NotWhoYouThink
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Re: life insurance vs extended warranties

Post by NotWhoYouThink »

Once you can self-insure, you can cancel your life insurance, too. If you are near retirement and have adequate savings, pension, and SS for your spouse if you die, then you can drop your insurance. You hope not to use it, and don't pay for what you don't need.
livesoft
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Re: life insurance vs extended warranties

Post by livesoft »

My products are not creating more income for my family to pay future living expenses.
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qwertyjazz
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Re: life insurance vs extended warranties

Post by qwertyjazz »

As above - assuming fair insurance plus a mark up for the company
It is a good idea to insure if the loss would on average would affect your life
If an air conditioning repair bill could only be payed with a credit card that would take months to pay off, then insure it
Similarly at any level for any device
If you are rich enough that loss of future income is absorbable to life style, do not insure it either
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