To extend or not to extend
In this weekend’s Wall Street Journal, there was an article on whether extended warranties make sense. The online version of the article requires registration, so I’ll pull some comments from it.
On average, just 20 cents on each extended warranty dollar is needed for claims. Retailers who sell the warranty end up with around 50 cents of that dollar, and the rest goes to administrators and insurers. Ever wonder why retailers push the warranty so hard? That 50 cents is almost pure profit.
In 2004, Consumer Reports surveyed the odds of an item needing a repair in its first three years. Computers ranked the highest, with about a third needing work. Clothes dryers required fixing 13% of the time, while electric ranges needed repairs about 11% of the time. Newer technology, like plasma TVs, was not included in the survey.
This article was perfect timing for me since I have been trying to decide whether or not to extend the warranty on our refrigerator. I have been leaning toward doing so for several reasons. First is the cost—I don’t want to have to spend $5,000 to replace it if something happened. The warranty is a little over 1% of that each year. More importantly is the problems we have had with other appliances that are from the same manufacturer. All of those issues were covered by the original warranties.
Offsetting those reasons is my experience that if something doesn’t go wrong in the first couple of years of a product’s life, it usually lasts the expected length of time trouble free. Also, the total cost of the refrigerator is not the likely expense if something does go wrong—a service call and replacement part is more likely.
I’m leaning toward getting the warranty, the deciding factor being my wife would more than likely being the person to have to deal with any problems. The easier and quicker something can get fixed (although I realize the warranty doesn’t guarantee either of those things explicitly), the better. She said she was in favor of the warranty if it fit in our budget, which it does.
So do you have any warranty horror stories or where it actually paid off?
On average, just 20 cents on each extended warranty dollar is needed for claims. Retailers who sell the warranty end up with around 50 cents of that dollar, and the rest goes to administrators and insurers. Ever wonder why retailers push the warranty so hard? That 50 cents is almost pure profit.
In 2004, Consumer Reports surveyed the odds of an item needing a repair in its first three years. Computers ranked the highest, with about a third needing work. Clothes dryers required fixing 13% of the time, while electric ranges needed repairs about 11% of the time. Newer technology, like plasma TVs, was not included in the survey.
This article was perfect timing for me since I have been trying to decide whether or not to extend the warranty on our refrigerator. I have been leaning toward doing so for several reasons. First is the cost—I don’t want to have to spend $5,000 to replace it if something happened. The warranty is a little over 1% of that each year. More importantly is the problems we have had with other appliances that are from the same manufacturer. All of those issues were covered by the original warranties.
Offsetting those reasons is my experience that if something doesn’t go wrong in the first couple of years of a product’s life, it usually lasts the expected length of time trouble free. Also, the total cost of the refrigerator is not the likely expense if something does go wrong—a service call and replacement part is more likely.
I’m leaning toward getting the warranty, the deciding factor being my wife would more than likely being the person to have to deal with any problems. The easier and quicker something can get fixed (although I realize the warranty doesn’t guarantee either of those things explicitly), the better. She said she was in favor of the warranty if it fit in our budget, which it does.
So do you have any warranty horror stories or where it actually paid off?
posted by Dwight at
8:45 AM
1 Comments:
Nope, no horror stories to relate, just a tangent.
I am always unsure about whether to buy extended warrantees. Sometimes I do, sometimes I don't. I go through something similar every year deciding whether to buy a service contract for my appliances (esp. the boiler) with the gas company.
This year, I had almost determined to buy a contract, and called the gas company to clarify what exactly they cover. The company's customer service agent actually talked me out of buying the contract. He advised me to put the monthly premium amount into a high-yield savings account instead. "That's what I do," he said. "That way, I'm earning interest, and I can pay for the repairs out of that account if I need to."
I love it when sage financial advice comes from an unexpected source. It wasn't anything I hadn't already thought of, but I'm glad to know that particular underpaid service worker has his financial ducks in a row. But I think he should be a little more subtle on a recorded line....
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Tiredbuthappy, at 6:56 PM
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