These days it’s harder than ever to buy something without having to listen to a sales pitch for an extended warranty, and many consumers are confused about whether it really makes sense to buy one. I’m certainly not an expert on consumer affairs, but as someone who has both bought and sold extended warranties in the past, I do have an opinion. Read on if you would like to hear it…
Retail outlets are pushing extended warranties harder than ever, and with good reason: they are both extremely profitable for the company and rarely used. Depending on the product, an extra 2-4 years of warranty coverage can cost upwards of 50% of the purchase price. As an example, an acquaintance of mine recently purchased a Panasonic 50″ Plasma TV for $1,900, and before the salesman would even head to the back to get one he spent over 20 minutes trying to convince my friend that he should shell out an extra $879 for a 4 year “replacement warranty”. The offer was ultimately declined, but my friend left the store wondering if he should have accepted it. My thoughts? No, for three reasons:
1 – The TV came with a one year manufacturer’s warranty already on it, so the “4 year” extended warranty was really only good for three years. Any problems that occurred during the first year would have to be handled by Panasonic – and that doesn’t necessarily mean getting a new TV as a “replacement”. More likely than not, the defective TV would be sent out for repair.
2 – As with most things electronic, any problems with the TV would probably show up during the first year, thus allowing the retailer to avoid having to make good on the extended warranty.
3 – If my friend had placed that extra $879 into a savings account, he would have that money to apply to the purchase of another brand new TV should this one die two or three years down the road. And judging by history, by that time he would probably be able to buy a much better TV at a lower price than he paid for this one WITHOUT having to deal with the hassle of trying to make the retailer honor the replacement warranty. And believe me, if his experience turned out to be anything like some of the ones I’ve had with extended warranties, there would surely be a hassle. Better yet, if his new TV keeps working for several years, he would still have that original $879 (plus interest) to spend on something else!
The last extended warranty I purchased was for a Canon Powershot S3 IS digital camera from Best Buy. After succumbing to a painful arm-twisting by the salesperson, I purchased a “4 year replacement warranty” for $89 (the camera only cost $349 to begin with). This turned out to be a huge mistake. To make a long story short, although the camera failed with two years left on the extended warranty, we never received a new camera from Best Buy even after sending the camera off for repair FIVE times (the warranty stated that a replacement would be provided after the 3rd repair). In the end we ended up with a $249 Best Buy gift card. Being determined to NEVER buy anything else from Best Buy that isn’t expendable, we spent the entire $249 on a generous supply of ink and photo paper.
To be fair, I can’t say that all of my experiences with extended warranties were bad however. A few years back I bought an HP laptop from Circuit City for approximately $1,500 as well as a four year extended warranty for $229. The laptop died just months before the extended warranty expired, but since I couldn’t find my receipt or the warranty paperwork I figured I would never be able to talk Circuit City into honoring the warranty. I was wrong. Within 10 minutes after walking in the door with the dead computer, I left with a copy of the original receipt in my hand. Three weeks later the laptop showed up on my doorstep with a brand new motherboard, and I’m still using that machine today. Needless to say, my experience with Circuit City was a far cry from the nightmare I had during my ordeal with Best Buy.
I also have had great experiences with extended warranties from Lowes, but overall I would have to say that the cost/benefits ratio combined with the hassle of getting the service I paid for makes it highly unlikely that I’ll ever buy another extended warranty, especially on computers and other consumer electronics where prices keep dropping as quality and functionality continually increases.