#1 – Avoid Extended Warranties If You Can Self-Insure
The primary reason I steer clear of extended warranties is the cost. When you consider the possibilities, it becomes clear that purchasing an extended warranty just doesn’t make financial sense. Furthermore, insurance companies will raise prices and correct any discrepancies if they believe you have the potential to benefit from the warranty. Instead, I recommend the concept of “self-insurance.” By not purchasing extended warranties, you can accumulate the money you would have spent and set it aside in a virtual rainy-day fund. Personally, I’ve “saved” over $7,500 in extended warranties over the past decade. This means that even if my refrigerator breaks the day after the manufacturer’s warranty expires, I would have enough money to buy a brand-new one and still “profit” over $5,000. Most people regret extending their warranties two to three years later.
#2 – Purchase an Extended Warranty That Doesn’t Exclude Failures
I vividly remember a moment of weakness when I purchased an extended warranty for my 2003 Jeep. Five years later, I faced an issue. The radio, which was covered by my $700 “comprehensive” extended warranty, stopped working. However, the warranty did not cover it, forcing me to purchase a replacement on eBay for an additional $100. I initially thought I could rely on the extended warranty, but it failed to deliver. The lesson learned here is to thoroughly read the fine print before making any decisions.
#3 – If a Product Breaks, Extended Warranties Make It a Hassle
It’s always a hassle when something breaks. Extended warranties are designed to make it difficult for you to have your warranty item repaired or replaced. Companies do their best to avoid these expenses, as they could go out of business if they don’t. Dealing with a third party, waiting for a response, and communicating with individuals who may not speak English fluently are ingrained into the extended warranty process. Additionally, salespeople who offer extended warranties may lack firsthand knowledge of the claims procedure. Extended warranties are usually assigned to the lowest bidder, which means they may not have experience making claims or a personal interest in the warranty service.
#4 – Buying Extended Warranties Benefits Retailers
The extended warranty business model is highly profitable for retailers. In almost 90% of cases, extended warranties generate higher profits than the actual merchandise sold, particularly for electronics. Salespeople who sell these policies often receive bonuses or commissions. Additionally, the insurance companies backing the warranties make money. All things considered, extended warranties are not advantageous for end-users.
#5 – The “Lemon” Promise Is Deceptive
Some retailers may incorporate a “lemon law” clause into their extended warranties. This clause states that if your product requires multiple repairs, you would receive a new product or store credit for the full purchase price. However, this is rarely the case. Lawyers carefully draft lemon laws, and they usually only come into effect after the manufacturer’s warranty has expired. Moreover, it’s not simply “three repairs”; it’s “three separate repairs.” If you encounter a new problem, the count resets, and your product may not qualify for a replacement or refund.
#6 – Extended Warranties Don’t Shield You From High Repair Costs
The notion that purchasing an extended warranty protects you from costly repairs is mostly fiction. In fact, it can cause more trouble. If you have to use the warranty for a power tool, for example, you might be required (or forced) to send the tool to an inconvenient and low-priced repair shop. Local repair costs for items like lawn mowers or refrigerators may be lower than the price of an extended warranty. This is especially true if not all products are prone to breaking.
#7 – The “Wear and Tear” Argument
The “wear and tear” argument is one of the top three excuses I encounter when salespeople try to sell me an extended warranty. In most cases, wear and tear is not covered. Even if it is, the coverage typically falls under the manufacturer’s first-year warranty or initial coverage. Components like belts and brushes are unlikely to be covered by any warranty. It’s highly improbable that you would exhaust the tools, utensils, or equipment within the first year. If you do experience any issues, they would most likely be considered defects or the result of misuse, in which case other warranty clauses would come into play. When asked about which parts are most likely to wear out, salespeople often struggle to provide a satisfactory answer because they are not trained in identifying parts prone to damage. Their focus is on selling extended warranties and highlighting product features.
#8 – “Two Years” of a Three-Year Extended Warranty
When purchasing an extended warranty, you might assume it covers your product as soon as you leave the store. However, this is rarely the case. Why would a retailer replace a good manufacturer’s warranty with their own? They wouldn’t. Your extended warranty will only come into effect once the manufacturer’s warranty expires. It’s a little-known secret, but that’s how it works.
I hope this article has shed light on the hassles and risks associated with purchasing extended warranties. It’s important to value peace of mind in your purchases while also avoiding being taken advantage of. For many people, extended warranties amount to an additional “tax” of around 30% on major purchases, which is quite unreasonable in my opinion. Consider self-insurance and being well-informed about what you’re actually buying to make better decisions overall. Happy shopping!