I haven't purchased an extended warranty in over ten years. Along the way, I learned about this practice that seems to take up the time and energy of many retail point employees and salespeople. The extended warranty market is big business. In fact, companies often outsource extended warranties to larger insurance companies. These companies then insert limitations and conditions into these policies designed to make it harder to actually make a successful claim.
In most cases, a manufacturer's warranty is sufficient to protect a tool with a factory warranty. This applies to the critical time period when it may be damaged due to structural defects or failure of the battery or other important mechanical or electrical components. But do you really need an extended warranty? And, more importantly, is the extra cost worth it? We think not. Here are 8 reasons why you shouldn't even consider buying an extended warranty for your tools, appliances, or even your vehicle.
#1 – You Shouldn’t Buy an Extended Warranty If You Can Self-Insure
The number one reason I don't buy an extended warranty has to do with computing cost. If you start thinking about the possibilities, you'll see that buying an extended warranty simply isn't worth it. After all, if you have the potential to act like a bandit, the insurance companies that issue and back these guarantees will raise prices even further and correct any discrepancies.
Instead, we recommend that you "self-insure". that's right. Don't buy any extended warranties for your product. You can then add up (at least mentally or on paper) all this money and deposit it in a virtual account for rainy days . Personally, I have "saved" over $7,500 in extended warranties over the past 10 years. That means I can literally bring home a brand new refrigerator, even if it breaks a day after the manufacturer's warranty expires, and still "make money" over $5,000. Most find themselves at a loss two to three years after refusing to extend their warranty.
#2 – Buy an Extended Warranty That Doesn’t Cover Failures
I will never forget a moment of weakness of mine, getting myself an extended warranty on a 2003 Jeep. Five years later, I ran into a problem. This Jeep is two years into my extended warranty and is beyond the manufacturer's warranty. What makes buying an extended warranty ultimately worth it? radio. What does my $700 "comprehensive" extended warranty get me?
there is nothing.
The radio was not covered, although it just stopped working. I had to buy my own replacement off eBay and paid an extra $100. At one point I thought I would use my extended warranty, but it failed to deliver. Lesson learned: Read the fine print.
#3 – If a product breaks, we'll fix it, no hassle…yes.
It's always a hassle when something breaks. Companies write extended warranties to do what they can to ensure they don't have to repair or replace your warranty item. If they don't, they will go out of business very quickly. From having to contact a third party, to waiting, to dealing with people who speak English as a second language, some extended warranties seem designed to confuse, redirect and defeat the initial efforts of those trying to make a claim.
Additionally, salespeople offering extended warranties often do not have first-hand knowledge of the claims process. Manufacturers and retailers assign extended warranties to the lowest bidder. Chances are, he never made a claim and wouldn't buy it for himself. After all, his goal involved commissions, not warranty service.
#4 – Buying extended warranties is a “cash cow” for retailers
The business model of buying extended warranties is not a thin markup model. Everyone involved has tons of cash. Retailers make a fortune. In fact, in nearly 90% of cases, extended warranties provide much higher profits than actual merchandise sold. That's three times more for electronics.
Salespeople who sell policies often also receive bonuses or commissions. Of course, the insurance companies that back it make money too. All of this should make it very clear to you that an extended warranty is not in the best interest of the end user.
#5 – The “Lemon” Propaganda Is a Hoax
Many times a retailer may sell you an extended warranty with a built-in "lemon law" clause. If I need to have my product repaired three times, I get a new product or store credit for the full purchase price. That's not quite true — and often not even at all.
Lawyers write lemon laws very carefully. Usually the "counter" won't kick in until after the manufacturer's warranty has expired. In addition, it is not "three repairs", but " three repairs". If you encounter a new problem, the counter resets. There are a number of issues you could experience, and the product may not actually be eligible for a replacement or refund.
#6 – Buy an extended warranty to prevent costly repairs
nonsense. We don't buy into the idea that buying an extended warranty will protect you from costly repairs. Most of the time, it's pure fiction.
When dealing with something like a power tool, the extended warranty you buy can actually create trouble by sending the tool (or forcing you to) the inconvenient and lowest priced repair shop to work. If you can really shop around locally, you might find that repairing your lawn mower or refrigerator costs less than the price of an extended warranty. This is especially true when considering that not all products break.
#7 – The “wear and tear” argument
Wear and tear must be one of my top 3 excuses when a salesperson tries to sell me an extended warranty. In fact, wear and tear is usually not covered, if it is, it is covered under the manufacturer's first year (or initial) coverage. For things like belts and brushes, you're unlikely to have them repaired as part of any warranty. But seriously, are you really going to run out of tools, utensils, or equipment in the first year?
Really? I do not think so. That would be a defect (or you abused it, in which case another clause would come into play to exclude you from warranty service). Looking for some fun? Ask the salesperson to tell you which parts are most likely to wear out? Our guess is they stare at you blankly, or make something up on the spot. They're not trained in this – most simply don't know. They're trained to sell extended warranties and (hopefully) tell you how the product works and what features it has.
#8 – Buy “Two Years” Three Year Extended Warranty
When you buy an extended warranty, you often have the impression that it covers your product the moment you walk out the door. In most (probably all) cases this is not the case. Think about it…you have a really good manufacturer's warranty on your product. Why would any sane retailer replace it with its own warranty?
They won't. Your extended warranty will not go into effect until the manufacturer's warranty expires. It's a dirty little secret in many schemes, but that's how it works.
Having said that, how likely are you to find any major defects under the manufacturer's warranty? Very likely. After all, most warranties don't cover wear and tear, so if the tool is good for the first year, it's likely to beat the insurance odds and continue to work for the next two years (see point #1 above). So the three-year warranty you paid for (and counted) is likely just two years of extra warranty.
epilogue
Did this help you become more aware of the hassles and dangers of extending your warranty? See, there's value in having peace of mind about your purchase, but there's also the good feeling that it won't be ripped off. For some people, extended warranties add up to a "tax" that adds up to a 30% tax on almost every major purchase. In our opinion, this is simply ridiculous.
Self-insurance and being more aware of what you're actually buying can lead to better decisions across the board. At least we think so. happy shopping!