I have gone over a decade without buying an extended warranty. Along the way, I learned a thing or two about the practice which seems to dominate the time and energies of associates and salespeople at many retail locations. The extended warranty market is big business. In fact, companies often outsource extended warranties to larger insurance companies. These companies then stuff these policies with limitations and conditions designed to make it more difficult to actually make a successful claim.
For the most part, manufacturer warranties sufficiently protect a tool with a factory warranty. This serves that 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. Here are 8 reasons why you donโt need to consider buying an extended warranty for your tools, appliances, or even your vehicle.
#1 โ If You Can Self-Insure, You Should NOT Buy an Extended Warranty
My number one reason for not buying extended warranties has to do with counting the cost. If you begin to factor in the odds, youโll find that buying extended warranties simply doesnโt add up. After all, if the odds were that youโd make out like a bandit, the insurance companies that issue and back these warranties would raise the price further and correct for any discrepancy.
Instead, we recommend you โself-insureโ. Thatโs right. DONโT buy ANY extended warranties on your products. Then, 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, Iโve โsavedโ over $7,500 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 manufacturerโs warranty expires, and still be โin the blackโ by over $5,000. Most people find themselves in the black after just two to three years of denying extended warranties.
#2 โ Buying Extended Warranties That Donโt Cover What Breaks
Iโll never forget my one weak moment, allowing myself to get an extended warranty on a 2003 Jeep. Five years later, I had an issue. The Jeep was two years into my extended warranty period and well out of my manufacturerโs warranty. What broke that made buying an extended warranty finally worth it? The radio. What did my $700 โbumper to bumperโ extended warranty get me?
Nothing.
The radio wasnโt 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 Iโd use my extended warranty, it failed to deliver. The lesson learned: Read the fine print.
#3 โ If the Product Breaks Weโll Fix It, No Hassleโฆ Right.
Thereโs always a hassle when something breaks. Companies write extended warranties to do everything in their power to make sure they DONโT have to repair or replace your warrantied item. If they didnโt, theyโd be out of business fast. From having to contact the third party, to waiting on hold, to dealing with people who speak English as a second language, some extended warranties seem designed to confuse, redirect, and frustrate the initial efforts of those attempting to make a claim.
In addition, the salesman offering the extended warranty doesnโt typically know firsthand how the claims process works. Manufacturers and retailers transfer extended warranties to the lowest bidder. Chances are, heโs never made a claim, nor would he buy it for himself. After all, his goal involves commissions, not warranty service.
#4 โ Buying Extended Warranties are โCash Cowsโ for Retailers
The business model of buying extended warranties isnโt a thin markup model. Plenty of cash exists for everyone involved. The retailer makes a killing. In fact, extended warranties offer much more profit in nearly 90% of cases than that made on the actual sold item. This goes triple for electronics.
The salesperson selling the policy also typically 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 โ The โLemonโ Pitch is a Scam
Many times, retailers may try to sell you on an extended warranty by including a built-in โlemon lawโ provision. If I need to repair my product three times, I get a new product or a store credit for the full purchase price. Thatโs not entirely true โ and often not even a little true.
Lawyers write lemon laws very carefully. Oftentimes, the โcounterโ doesnโt start until the manufacturerโs warranty ends. In addition, itโs not โthree repairsโ, itโs โthree identical repairsโ. 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 โ Buying Extended Warranties Protect Against High Repair Costs
Poppycock. We donโt believe the notion that buying an extended warranty protects you from high repair costs. This turns out to be pure fiction most of the time.
When dealing with an item such as a power tool, the extended warranty you buy can actually create a hassle by having the tool sent (or forcing you to go to) a repair shop that isnโt convenient and offers the lowest price for the most work. If you can actually shop around your local area, you may find that repairing that lawnmower or refrigerator costs less than the price of the extended warranty. That especially holds true when factoring in that not all of your products are going to break.
#7 โ The โWear and Tearโ Argument
Wear and tear have 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 are often NOT covered, and if it is, itโs covered under the manufacturerโs first year (or initial period) of coverage. For things like belts and brushes, youโre 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 donโt think so. That would be a defect (or youโre misusing it, in which case another clause will come into play that will exclude you from warranty service). 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 arenโt trained for thisโmost simply donโt 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 โ Buying the โTwo-Yearโ Three-Year Extended Warranty
When you buy an extended warranty, you often fall under the impression that this warranty covers your product the second you step out the door. In most (possibly all) cases that isnโt true. Think about itโฆ there is a perfectly good manufacturerโs warranty on your product. Why would any sane retailer supersede that with their own warranty?
They wouldnโt. Your extended warranty wonโt kick in until your manufacturerโs warranty expires. This is a dirty little secret in many plans, but itโs the way it works.
With that said, how likely is it that youโll discover any major deficiencies in the manufacturerโs warranty period? Very likely. After all, most warranties donโt cover wear and tear, so if the tool works in year one, itโs 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.
Concluding Thoughts
Did this help you become more aware of the hassles and dangers of extended warranties? Look, there is value in having peace of mind about your purchases, but there is also good sense it not getting ripped off. For some, extended warranties add up to a โtaxโ that adds up to 30% on top of nearly every major purchase. In our minds, thatโs simply ridiculous.
Self-insuring, and being more aware of what you are actually purchasing can result in better decisions all-around. At least we think so. Happy shopping!
