Insurance You Shouldn't Buy: Extended Warranties

I was listening to my local news radio channel this morning, and heard that Consumer Reports has done a study on extended warranties and found them to be a consumer rip-off.

I could have told them that.

Extended warranties are essentially a type of insurance. In this case, you are buying insurance against a problem with your purchase that doesn't show up until after you've taken it home. The vendor sells extended warranties to you for your purchase, mostly electronics, as a protection against just such a problem. In general, your machine will always break down after the warranty has passed. Why? Well, most vendors likely have monitored the items and have a good idea of when something will generally go wrong. As you might expect, the warranty that they sell you is shorter than that time period!

In fact, retailers who sell these warranties make a lot of money on them. Sales people will be commissioned for selling the extended warranty -- I know, because my husband was a sales person in the computer field for awhile, and he was bonused if he sold warranties.

If you really want an extended warranty on your purchase, use your credit card. For most cards, you are guaranteed that your credit company will go to bat for you if you dispute a charge. So, if something was defective and you try to take it back, but have a problem and don't get a proper credit, your credit card company will fight the battle for you.  This gives you at least the time between your purchase and when you get your bill as "extended warranty"; in that time period, your credit card company is on your side.

In addition, some credit cards offer extended warranties themselves. Many "gold" and "platinum" cards will automatically give you 6 months to 1 year extended warranty on an item. This means that your credit card company will replace an item that is found to be defective in that time period. Some even include breakage in their warranty. Since many extended warranties offered at cost by a retailer are no more than a year, why buy something you already have?

We'll cover other types of "insurance" that are also rip-offs in the next few entries.

Monique L. Attinger
Posted by on November 16,2006 at 8:04 PM
This is the exception to the rule; you have definitely found one place where an extended warranty makes sense. In fact, the Consumer Reports folks said that the only extended warranty that could work for you would be on very expensive appliances or expensive, high end electronics, like your rear project television.

Personally, I still don't buy them. One year coverage for any defective equipment through my credit card works fine for me. But I don't own a rear projection tv either!
Posted by Mattys on November 15,2006 at 3:35 PM
  I have only come across one extended warranty that makes sense. Best Buy had a 4 year extended warranty on their rear projection televisions. They offered this at around $400 which seemed steep but doing some simple math, it turned out to be an excellent deal. The television bulbs last approximately one year and cost $300-400 each, so I could expected to need roughly $1200-$1600 in bulbs in those 4 years.
  Perhaps Best Buy was counting on people losing their warranty information, or it could be the bulbs only cost them $1 each. Either way they convinced me to get it and it has been the one and only warranty I have ever been glad I bought.
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