extended warranty - yea or nay - what's your take/experience

[Dominik Dudkiewicz]

Sorry, I'm going to have another go now that I'm at a keyboard.

There will always be examples of where an extended warranty was extremely worthwhile in that instance. However here is how I see it -

- Most products either fail quickly, during the burn-in period, or have defects that got through quality control and are immediately apparent. These failures are picked up or occur in the statutory or regular 'free' warranty period. After that, they follow a bathtub curve of failure rate where there is a steady and low rate of failure for a long period before things start to wear out in the medium to long-term. That medium to long term is typically later than the extended warranty period. So effectively you are buying warranty for the period that has the lowest rate of failure.

- manufacturers know their failure rates so will price the extended warranty such that overall they will always make a profit. And not only will they make a profit, but the retailer of the warranty will get a huge cut (from what I've been told by people who sell extended warranties on white-goods and electronics the extended warranties provide in excess of 50% profit/commission).

- what this means is that if the manufacturer sells an extended warranty for say $50- they might make $10- for each one. These are then sold to the customer for $100-, providing the retailer $50- of commission. This means that you are paying $100- for something that will statistically return you $40- of value. Now of course sometimes you get lucky and it ends up being really good value, or you lose if you didn't get the warranty, but over the course of your life and the many items you buy, hopefully the distribution of failure will be fairly gaussian and average out such that not getting warranty on anything you win. It's like playing roulette at the casino - you might win, you might lose, but the odds are in the houses favor and with sufficient spins and bets the laws of probability will ensure that the house wins and the players lose. The difference here is that the odds are far worse with extended warranty than roulette for the customer IMO. My thinking is that over a lifetime and many goods the distribution of failure on items you buy should hopefully approximate a standard distribution and you should come out on top vs buying extended warranty on everything. Even if it doesn't you are still on the right side of the odds - you might just be unlucky.

- I can actually only recall one time in my life when I had to use warranty - and that was for replacement of some capacitors on a Jet Planer-thicknesser combo that was still in its standard warranty period. All of my failed TV's, laptops, whitegoods etc occurred outside even a 5-7 year extended warranty period (that I have never bought in any case).

Also, if you feel that something is likely to fail and needs an extended warranty - don't buy that junk - look for something that you don't think will be unreliable!

I would actually be more inclined to give up my standard warranty for a discount than to pay more to extend it.

Last point - I hate that 'durable' white-goods are not made to last. There should be a minimum statutory warranty of minimum 10-15 years on these goods or the cost of disposal, carbon emissions, environmental impact, etc etc should be charged to the producer. This would make the cheap stuff that fails quickly and wastes resources cost substantially more and make quality products more competitive - why pay $2000 for a fridge that will only last 2 years when you can buy a high quality one that lasts for 20 for $3000-. As it is, the incentive, by not factoring in the negative externalities (costs to the world that are not directly borne by manufacturers or customers) of junk goods in their price is in favour of cheap crap for $500- that many buy and replace every couple of years.

Sorry, long one. Rant over.

Cheers,

Dom

[Rich Engelhardt]

why pay $2000 for a fridge that will only last 2 years when you can buy a high quality one that lasts for 20 for $3000-.

Biggest problem I see there is - - how do you know the $3000 item is going to last ten times as long as the $2000 item? Is it made ten times better or is it going to be more profitable for the manufacturer and be built just as cheaply?
It's been my experience in life that, you very seldom get what you pay for anymore.
There are exceptions to that but - with the way "brand names" are bought and sold anymore, most of the time you just pay for the name.

My question is what do you do for the next 10 days to two weeks to keep your food cold?

LOL! That caused a huge argument! I wanted to pick up one of those small $100 bar fridges. Wife blew a gasket over me wanting to stick it in the dining room for the next two weeks....something about it looking bad for the holidays.......like anyone but me, her and the dogs would see it...
We do have a 2nd refrigerator in the basement & the back enclosed porch is a few steps away from the kitchen - so we stuck a cooler out there.

[Curt Harms]

One 'extended warranty' I've read that can pay off is for cell phones - all hazards. Especially if the primary user is a klutz.

[Doug Dawson]

Sorry, I'm going to have another go now that I'm at a keyboard.

There will always be examples of where an extended warranty was extremely worthwhile in that instance. However here is how I see it -

- Most products either fail quickly, during the burn-in period, or have defects that got through quality control and are immediately apparent. These failures are picked up or occur in the statutory or regular 'free' warranty period. After that, they follow a bathtub curve of failure rate where there is a steady and low rate of failure for a long period before things start to wear out in the medium to long-term. That medium to long term is typically later than the extended warranty period. So effectively you are buying warranty for the period that has the lowest rate of failure.

- manufacturers know their failure rates so will price the extended warranty such that overall they will always make a profit. And not only will they make a profit, but the retailer of the warranty will get a huge cut (from what I've been told by people who sell extended warranties on white-goods and electronics the extended warranties provide in excess of 50% profit/commission).

- what this means is that if the manufacturer sells an extended warranty for say $50- they might make $10- for each one. These are then sold to the customer for $100-, providing the retailer $50- of commission. This means that you are paying $100- for something that will statistically return you $40- of value. Now of course sometimes you get lucky and it ends up being really good value, or you lose if you didn't get the warranty, but over the course of your life and the many items you buy, hopefully the distribution of failure will be fairly gaussian and average out such that not getting warranty on anything you win. It's like playing roulette at the casino - you might win, you might lose, but the odds are in the houses favor and with sufficient spins and bets the laws of probability will ensure that the house wins and the players lose. The difference here is that the odds are far worse with extended warranty than roulette for the customer IMO. My thinking is that over a lifetime and many goods the distribution of failure on items you buy should hopefully approximate a standard distribution and you should come out on top vs buying extended warranty on everything. Even if it doesn't you are still on the right side of the odds - you might just be unlucky.

- I can actually only recall one time in my life when I had to use warranty - and that was for replacement of some capacitors on a Jet Planer-thicknesser combo that was still in its standard warranty period. All of my failed TV's, laptops, whitegoods etc occurred outside even a 5-7 year extended warranty period (that I have never bought in any case).

Also, if you feel that something is likely to fail and needs an extended warranty - don't buy that junk - look for something that you don't think will be unreliable!

I would actually be more inclined to give up my standard warranty for a discount than to pay more to extend it.

Last point - I hate that 'durable' white-goods are not made to last. There should be a minimum statutory warranty of minimum 10-15 years on these goods or the cost of disposal, carbon emissions, environmental impact, etc etc should be charged to the producer. This would make the cheap stuff that fails quickly and wastes resources cost substantially more and make quality products more competitive - why pay $2000 for a fridge that will only last 2 years when you can buy a high quality one that lasts for 20 for $3000-. As it is, the incentive, by not factoring in the negative externalities (costs to the world that are not directly borne by manufacturers or customers) of junk goods in their price is in favour of cheap crap for $500- that many buy and replace every couple of years.

That's fine logic except it doesn't apply to refrigerators. On these things, vendors seem to be using the extended warranty as a _loss_leader_, because if you knew how much they actually cost, you'd never buy the product in the first place. :^) They have a constant line of failure, no matter what the brand, across the board, just a matter of degree. Maybe SubZero could be an exception, but who wants to spend US$10k on a freakin' refrigerator.

[Stan Calow]

I will always get it for the HVAC system. One time, I had a leaking freon regulator. The repair guy told me that it would cost more to fix than upgrade to a new current system. When I reminded him we had an extended warranty through his shop, suddenly they found a way to fix it. So I look at as rip-off insurance. Other appliances, I gamble on.

[Charlie Velasquez]

One 'extended warranty' I've read that can pay off is for cell phones - all hazards. Especially if the primary user is a klutz.

An often overlooked extended “warranty/service plan” is via your credit card. As a benefit of my Visa card I get extended warranty protection that may actually exceed what the company would have provided.

As an example, I bought my daughter a new smart phone with no additional warranty/service plan, and paid with my credit card. She chose not to get the Otterbox case as it “made the phone look klutzy”. Thirty minutes after walking out of the store she dropped it and cracked the screen. Visa replaced it immediately. No fuss, no muss (mmm... that is the first time I have written that phrase, looks strange).

As far as purchased warranty/service plans, I purchased one for a Craftsman lawn tractor as it included spark plugs, belts, and air filters. Turned out very fortunate as two years after the purchase the engine failed. Free replacement.
We also purchased a service plan for my wife’s new Sonata. It included touch up of nicks & dings, and my wife thinks the greatest advantage of a compact is to fit in tight spaces at shopping center parking lots. Door dings are a constant issue. It has already paid for itself as my wife lost her key; a new one costs $300-$400, and a rock from a dump truck cracked her windshield. Our auto insure would have covered the windshield, also, but that has a $1000 deductible. Unlike Ted’s experience, after contacting our salesperson, she made all the arrangements and called a couple of times to make sure we were taken care of.

I tend not to purchase them, though, unless I see at least some certain return as the door dings or such.

[Mike Henderson]

Sorry, I'm going to have another go now that I'm at a keyboard.

There will always be examples of where an extended warranty was extremely worthwhile in that instance. However here is how I see it -

- Most products either fail quickly, during the burn-in period, or have defects that got through quality control and are immediately apparent. These failures are picked up or occur in the statutory or regular 'free' warranty period. After that, they follow a bathtub curve of failure rate where there is a steady and low rate of failure for a long period before things start to wear out in the medium to long-term. That medium to long term is typically later than the extended warranty period. So effectively you are buying warranty for the period that has the lowest rate of failure.

- manufacturers know their failure rates so will price the extended warranty such that overall they will always make a profit. And not only will they make a profit, but the retailer of the warranty will get a huge cut (from what I've been told by people who sell extended warranties on white-goods and electronics the extended warranties provide in excess of 50% profit/commission).

- what this means is that if the manufacturer sells an extended warranty for say $50- they might make $10- for each one. These are then sold to the customer for $100-, providing the retailer $50- of commission. This means that you are paying $100- for something that will statistically return you $40- of value. Now of course sometimes you get lucky and it ends up being really good value, or you lose if you didn't get the warranty, but over the course of your life and the many items you buy, hopefully the distribution of failure will be fairly gaussian and average out such that not getting warranty on anything you win. It's like playing roulette at the casino - you might win, you might lose, but the odds are in the houses favor and with sufficient spins and bets the laws of probability will ensure that the house wins and the players lose. The difference here is that the odds are far worse with extended warranty than roulette for the customer IMO. My thinking is that over a lifetime and many goods the distribution of failure on items you buy should hopefully approximate a standard distribution and you should come out on top vs buying extended warranty on everything. Even if it doesn't you are still on the right side of the odds - you might just be unlucky.

- I can actually only recall one time in my life when I had to use warranty - and that was for replacement of some capacitors on a Jet Planer-thicknesser combo that was still in its standard warranty period. All of my failed TV's, laptops, whitegoods etc occurred outside even a 5-7 year extended warranty period (that I have never bought in any case).

Also, if you feel that something is likely to fail and needs an extended warranty - don't buy that junk - look for something that you don't think will be unreliable!

I would actually be more inclined to give up my standard warranty for a discount than to pay more to extend it.

Last point - I hate that 'durable' white-goods are not made to last. There should be a minimum statutory warranty of minimum 10-15 years on these goods or the cost of disposal, carbon emissions, environmental impact, etc etc should be charged to the producer. This would make the cheap stuff that fails quickly and wastes resources cost substantially more and make quality products more competitive - why pay $2000 for a fridge that will only last 2 years when you can buy a high quality one that lasts for 20 for $3000-. As it is, the incentive, by not factoring in the negative externalities (costs to the world that are not directly borne by manufacturers or customers) of junk goods in their price is in favour of cheap crap for $500- that many buy and replace every couple of years.

Sorry, long one. Rant over.

Cheers,

Dom

I agree with you. Whoever is offering the warrantee is doing it to make money. If you buy it, you're betting that your product will fail and the seller is betting that it won't.

A purchased warrantee is essentially insurance and sometimes insurance is useful if you can't stand the loss. Life insurance is a type of "product warrantee" where the loss could be catastrophic to the survivors.

But if you can stand the loss, you're probably better off to not purchase a product warrantee. Spread over all your purchases you'll most likely come out ahead.

Mike

[Dan Friedrichs]

An often overlooked extended “warranty/service plan” is via your credit card. As a benefit of my Visa card I get extended warranty protection that may actually exceed what the company would have provided.

+1. Underappreciated and underutilized benefit. It's a totally free extended warranty.

I had a color laser printer stop working a few days out of the normal warranty. Amex told me to throw it away and gave me a full credit for its original cost. No hassle at all. Took seconds to fill out the online form and a ~day for them to resolve it.

[Jerome Stanek]

I bought a extended plan from Best Buy for my first laptop and after 3 years it could not be fixed they ended up crediting me with the price I paid for it and used that to get a new one plus a new extended plan that one was in the shop 4 times when they were going to fix it but the plan said 3 repairs and they would replace. Again I used the credit for a new laptop and new extended plan this went on for a total of 5 laptops when the credit was not enough to cover a laptop and plan so the last one was just a laptop. My first laptop was bought in 93

[Doug Garson]

One 'extended warranty' I've read that can pay off is for cell phones - all hazards. Especially if the primary user is a klutz.

That sounds more like insurance than warranty. If a cell phone breaks when you drop it that's not a warranty issue unless you bought a military grade indestructible model.

[Jim Becker]

That sounds more like insurance than warranty. If a cell phone breaks when you drop it that's not a warranty issue unless you bought a military grade indestructible model.

None of these contracts are "warranties" as I noted previously...they are extended service contracts/insurance, despite the fact that many people, including the folks selling them, call them "warranties".

[Art Mann]

The way I see it, buying insurance on consumer items that I can replace myself if necessary is the same as buying a lottery ticket as an insurance policy against poverty. It works for a small minority but is a terrible investment for most people. The only extended warranty or insurance I buy is for things I can't easily afford to fix or replace. One example is a house. Another is liability insurance.

Statistically speaking, no manufacturer or insurance company will ever sell a policy that isn't overwhelmingly slanted in their favor. Anecdotes like you see in this thread are worthless. Everybody who got more from an insurance policy than they put in wants to brag about it. Nobody wants to admit to themselves, much less admit to other people, that they wasted money on an extended warranty.

[Dominik Dudkiewicz]

The way I see it, buying insurance on consumer items that I can replace myself if necessary is the same as buying a lottery ticket as an insurance policy against poverty. It works for a small minority but is a terrible investment for most people. The only extended warranty or insurance I buy is for things I can't easily afford to fix or replace. One example is a house. Another is liability insurance.

Statistically speaking, no manufacturer or insurance company will ever sell a policy that isn't overwhelmingly slanted in their favor. Anecdotes like you see in this thread are worthless. Everybody who got more from an insurance policy than they put in wants to brag about it. Nobody wants to admit to themselves, much less admit to other people, that they wasted money on an extended warranty.

Yes exactly. 100% agree. The odds are not in your favour so only insure against events that will really cripple you / wipe you out (eg. House, unlimited personal liability or total contents etc). Don't insure for things you can cope with / insure yourself - eg. most products - statistically you will come out ahead.

With regard to the examples of when extended warranty was worthwhile of course there will be many - but imagine the number of examples given if everyone wrote down every single item they didn't need to put a warranty claim in on throughout their lives.

Cheers, Dom

[Bruce Wrenn]

My brother worked for an auto extended warranty company for years. Some companies are much better than others. One of their customers leased Toyotas for business, then after lease was up, auctioned them off. Auction yard calls him to come get hazmat materials form inside one vehicle. He goes down to yard, and finds three sealed R-12 thirty pound cylinders in back seat, which he sold for around a grand each. Not bad for a couple hours work.They sold an extended warranty on a fancy bicycle. Purchaser was a lawyer. Front wheel came off, injuring him. Sues warranty company. Brother has to represent company in court action. He asks lawyer if he had the manual for bike, which he did. Upon questioning him, he admitted he never read manual. It was still sealed, with in bold letters across the front "Read complete instructions before riding bike." Instructions told buyer to check all nuts and bolts before riding. Case dismissed! Another car, Car Fax showed it to have been in an accident. On the day of accident, car was in for servicing almost 100 miles from accident site. Car Fax showed several body parts replaced. Almost all body parts now have a UPC sticker on them, which when removed becomes unreadable. Supposedly replaced parts had correct UPC labels attached, that matched vehicle's VIN number. Another case dismissed. Car warranty company went after Car Fax, and won their case

[Rich Engelhardt]

None of these contracts are "warranties" as I noted previously...they are extended service contracts/insurance, despite the fact that many people, including the folks selling them, call them "warranties".

LOL! So did the guy that started this thread!