8 Reasons NOT to Buy an Extended Warranty

I have gone over a decade without buying an extended warranty – and it’s shown me a thing or two about the practice, which seems to dominate more and more the time and energies of associates and salespeople at many retail locations. The extended warranty market is big business, often being outsourced to larger insurance companies and having many facets of operation and conditions unknown to users. For the most part, manufacturer warranties are sufficient to protect a tool during the crucial period of time in which it may break due to a defect in construction or a failure on the part of a battery or other significant mechanized or electrical part. But do you really need an extended warranty – and more importantly: Is it worth the additional cost? We think not, and here are 8 reasons why you don’t need to consider an extended warranty for your tools, appliances, or even your vehicle.

#1 – Count the Cost and then Self-Insure

My number one reason for not buying extended warranties has to do with counting the cost. If you begin to factor in the odds, you’ll find that buying extended warranties simply doesn’t add up. After all, if the odds were that you’d make out like a bandit, the insurance companies that issue and back these warranties would raise the price further and correct for any discrepancy. So we recommend you “self-insure”. That’s right, if you DON’T buy ANY extended warranties on your products, you can (at least mentally or on paper) add up all that money and put it into a virtual account for when a product actually does break. For me personally, I’ve saved over $7500 in extended warranty offerings in the last 10 years. That means that I could literally take home a brand new refrigerator, have it break just one day after the manufacturer’s warranty expires, and still be ‘in the black’ by over $5000. Most people will be in the black for most purchases after just three years of denying extended warranties.

#2 – Extended Warranties Often Don’t Cover What Breaks (or Come with Documentation)

I’ll never forget my one weak moment, allowing myself to get an extended warranty on a Jeep. 5 years later, when it was two years into my extended warranty period and well out of my manufacturer’s warranty, the radio broke. What did my $700 “bumper to bumper” extended warranty get me? Nothing. The radio wasn’t covered, despite the fact that it simply stopped working. I had to buy my own replacement off eBay and was out an additional $100. The one time I thought I’d use my extended warranty, it failed to deliver.

#3 – If the Product Breaks We’ll Fix It, No Hassle… Right.

There’s ALWAYS a hassle when something breaks. Extended warranties are written by companies that do everything in their power to make sure they DON’T have to repair or replace your warrantied item. If they didn’t, they’d be out of business fast. From having to contact a third party, to waiting on hold, to dealing with people who speak English as a second language, extended warranties are designed, by default, to confuse, redirect, and frustrate the initial efforts of those attempting to make a claim. There are few exceptions to this rule, but we emphasize few. In addition, the salesman who is offering the extended warranty doesn’t typically know first hand how the claims process works. That warranty has been transferred to the lowest bidder and chances are he’s never made a claim, nor would he buy it for himself – having first-hand knowledge that the goal is commissions, not service.

#4 – Extended Warranties are “Cash Cows” for Retailers

The business model of extended warranties isn’t a think markup model – there is plenty of cash for everyone involved. The retailer makes a killing, much more of a profit in nearly 90% of cases than they make on the actual item being sold (this goes triple for electronics). The salesperson selling the policy gets a bonus or commission. And of course, the insurance company backing it makes money. All of this should give you a very clear picture that an extended warranty is NOT in the best interest of the end-user.

#5 – The “Lemon” Pitch is a Scam

Many times when I am being sold on extended warranties I am told that there is a built-in “lemon law” provision. If my product has to be repaired three times I get a new product or a store credit for the full purchase price. That’s not entirely true – and often not even a little true. The lemon laws are carefully written such that oftentimes the “counter” doesn’t start until the manufacturer’s warranty ends. In addition, it’s not “three repairs”, it’s “three identical repairs”. If you have a new problem, the counter resets. You can have any number of problems and the product may not actually qualify for replacement or credit.

#6 – Extended Warranties Protect Against High Repair Costs

Poppycock. Pure fiction most of the time. If you are dealing with an item such as a power tool, then the extended warranty can actually create a hassle by having the tool sent (or forcing you to go to) a repair chop that isn’t convenient and is offering the lowest price for the most work. If you can actually shop around your local area, you may find that repairing that lawn mower or refrigerator costs less than the price of the extended warranty – especially when you factor in that not all of your products are going to break.

#7 – The “Wear and Tear” Argument

Wear and tear has got to be in my top three list of excuses salespeople give me when attempting to sell me an extended warranty. The fact is, wear and tear is often NOT covered, and if it is, it’s covered under the manufacturer’s first year (or initial period) of coverage. For things like belts and brushes, you’re not likely to get them serviced as part of any warranty. But seriously, is your tool, appliance, or device going to really wear out in year one? Really? I don’t think so – that would be a defect (or you’re misusing it, in which case another clause will come into play that will exclude you from warranty service  either case). Want to have some fun? Ask the salesperson to tell you what parts are more than likely to wear out? Our guess is they will stare at you with a blank face, or make something up on the spot. They aren’t trained for this – they simply don’t know. What they ARE trained for is how to sell extended warranties and (hopefully) tell you how the product works and what features it has.

#8 – The “Two-Year” Three-Year Warranty

When you get an extended warranty, often you are under the impression that this warranty covers you r product the second you step out the door. In most (possibly all) cases that isn’t true. Think about it… there is a perfectly good manufacturer’s warranty on your product. Why would any sane retailer superseded that with their own warranty? They wouldn’t. Your extended warranty won’t kick in until your manufacturer’s warranty expires. This is a dirty little secret in many plans, but it’s the way it works. With that said, how likely is it that you’ll discover any major deficiencies in the manufacturer’s warranty period? Very likely. After all, most warranties don’t cover wear and tear, so if the tool works in year one, it’s likely it will beat the insurance odds and keep working for the next two years following as well (see our #1 point above). So that three year warranty you paid for (and did the math on) is more than likely just two years of extra coverage.

Did this help you become more aware of the hassles and dangers of extended warranties? Look, there is a value in having peace of mind about your purchases, but there is also good sense it not getting ripped off. For some, extended warranties are a “tax” that adds up to 30% on top of nearly every major purchase. In our minds that’s simply ridiculous. Self-insuring, and being more aware of what you are actually purchasing may result in better decisions all-around. At least we hope so – happy shopping!

Print PDF