Are Extended Warranties Worth It? Not Really

January 9, 2019

I am guilty of it. You are guilty of it. Americans are a spending society. We are a nation of consumers. We buy a lot of things that we just want, don’t need, or have a particular use for. A commentary on modern society? Maybe. Yet, it is also a true statement. We like owning things. In the last quarter of 2018, Americans collectively spent over $14 trillion on consumerism by most conservative estimates.

That is not an insignificant detail. Consumer spending is responsible for almost 70% of the United States economy. Being a consumer is big business for the United States, businesses, and retailers. You know what else is a big business in the United States? Extended warranties, also known as service contracts. About 10 American companies control about 60% of the $40 billion-dollar extended warranty industry in the United States. Are extended warranties worth it? Not usually.

Why Extended Warranties Aren’t Worth the Cost

What is an extended warranty? It is an extended version of a warranty for an appliance, product, or some consumer good that you buy from a business or retailer. An extended warranty may extend the period for replacement or repair coverage for the product. However, as I have learned from experience, an extended warranty is a waste of money. It’s usually redundant and benefits the issuer and the retailer more than the consumer – usually to the detriment of the consumer.

The Retailer Benefits More Than You

After you bought a flat screen TV, laptop computer, microwave, or some other expensive appliance or product, did a retail employee approach you about an extended warranty? Did they pressure you and insist you purchase an extended warranty for added protection? That was not a happenstance incident. It was intentional and orchestrated for the primary benefit of the retailer.

Stores, retailers, and businesses keep 50% of any extended warranty package that they manage to sell to consumers. Over 65% of consumers were directly approached by retail employees and pitched the idea of buying an extended warranty. The average price an extended warranty is about $80 to $130. Do you think this practice is for your benefit or the commission benefit potential of retailers?

An Extended Warranty Is An Unnecessary Redundancy

The product or appliance that you purchase may have an implied warranty of merchantability provision as mandated by law. Meaning that on the average, most appliances, electronics, and other applicable products have at least a 90-day warranty included. In effect, you are paying for a duplicate warranty plan that inherently exists upon purchase.
Many credit cards have a warranty protection feature that applies if you buy the product with the credit card. In this regard, you may be buying an extended warranty because you were pressured into it by a store employee.

Beware Service Limitation Loopholes

Make sure you read the fine print before you pay for an extended warranty. The issuer can refuse or limit service for arbitrary and self-benefiting reasons. If you don’t follow manufacturer operating instructions and break the product, your claim could be denied. You might have to physically take the product to an inconveniently located contractor associated with the extended warranty issuer.

Or, you might have to ship the product for repair and pay for shipping costs to send and receive it back. It might take too long, weeks or months, to effect repairs. A contractor may just outright refuse you service. The extended warranty issuer can go out of business. Instead of buying repair and replacement protection, you may just be buying bureaucracy headaches.

It’s Safe to Skip the Warranty

Is an extended warranty worth it? Probably not. You are probably already covered. Also, the price of paying for a repair against the extended warranty service could be a difference of tens of dollars.

Have you ever benefited from an extended warranty? Share with us in the comments below!