Extended Warranty – Worth It or Not?

I paid more than $300 for an extended warranty on a laptop I got stolen. That made the financial loss associated with the theft so much more severe and made me question the worth of extended warranties. I have done some research and found out that number of laptops that get stolen is significantly higher than number of laptops that need a pricey repair. What this means is that the chances that your laptop gets stolen (or lost – there is also a great deal of laptops people simply forget at a snack shop of an airport and won’t realize that until after takeoff) are far greater than chances of it breaking down. Taking all that into account – are extended warranties worth it or not? Let’s take a closer look at it:

Manufacturer’s Warranty vs Extended Warranty

Laptops, as well as other electronic devices come with manufacturer’s warranty included in price. In most cases, manufacturer’s warranty covers the product for one year and oftentimes applies worldwide. My Samsung Q320 laptop came with one year worldwide warranty and if you buy an equally reputable brand product, you will likely get the same with it. If something was unstable about the product you buy, it would show within a year of use. If on the other hand the product was solid built, chances are it will serve you well for many years without issues. That thing alone makes extended warranty NOT worth it. If there is an issue, it will show during manufacturer’s warranty. If there is no issue, chances are fair the product will work like it should way beyond the coverage of your extended warranty.

Photo: Sticker on My Laptop Signifying That I Came with One Year International Warranty from a Manufacturer

Extended Warranty Claims

If you look up statistics on the internet, you will find out that only about 3% of extended warranty cases end up paying for themselves. 97% of extended warranties purchased are a waste of money. The thing is that many people realize that they are facing a possibility of having the money wasted, but since extended warranty is a peace of mind, they are willing to consider that as an option. Sales people know that very well and have a handful of arguments at the ready to throw at you when you are buying a product. There is no wonder why extended warranty upsales make up for most of sales people’s wages. They are aware of statistics themselves and know that for the most part, vast part of extended warranties they sell will expire without any claims made, which literally means it’s hundreds of dollars straight in their pocket with nothing being given in return.

Cost of Extended Warranties

The cost of an extended warranty is not low at all. It’s typically 1/4 to 1/3 of the price of the item. So if you are buying a $1,000 worth of a laptop, you are looking at good $300 for an extended warranty. That’s a big chunk of money if you look at it. But it gets better – consider this:

If you do spend $300 for 3 years of extended warranty for your laptop, you will have your laptop “protected” until such time that it will be an obsolete piece of junk you won’t be able to use because modern application will not run on it. It’s a simple fact that technology progress is immense. You won’t even reach the end of your extended warranty and you will already start looking around for a new laptop that will contain all latest components cause your old one doesn’t have it. Had you not used the $300 for an extended warranty with purchase of this one, but used this money towards the fund for purchase of a new laptop, you’d be much better off right now. Because even if your laptop quits on you after three years, with an extended warranty you could get it fixed but end up with the same obsolete piece. Whereas if you put this money to work for you in the meantime, gain on its worth and use it towards the purchase of new laptop, you would end up with latest technology piece that will far and wide outdo your old one. Fast aging of electronic devices makes extended warranties not worth it. We’re not in the 1920’s when products were expensive, but were made to last. We are living in the age of disposable electronics. What you buy is not built to last, so don’t fix it, replace it.

Replacing a product after a period of use with newer, better, more feature rich and more up to date version is better than having an old one repaired on many accounts. Let it serve you for as long as it will and when its time comes, upgrade to a newer version. Gateway and Dell – makers of portable computers have both admitted that they have seen minimal increase in costs for warranty claims after they started offering extended warranties, but the increase in revenue grew substantially. That means that prior to offering extended warranties their cost of taking care of regular warranties may have been in the $16 Million mark, but as they started offering extended warranties, the cost of taking care of claims rose to $17 Million mark, but their revenue grew by $33 Million which came from sales of extended warranties.

Extended Warranty Scams

Savvy buyers know that many specialty coverages are a scam. Good example is rust protection for your new car. Car sales men like to offer special coating for your newly purchased car and since you are spending $20,000 on it, you should definitely consider investing additional $1,000 to have your body covered with special anti rust coating, right? It would normally make sense, unless you look deeper into it. And if you do, you find out that car body already comes with 10 years of anti rust manufacturer’s warranty. In other words, car dealership will try to sell you protection for your car that will do the same job factory applied protection does.

This scam is by no means limited to car dealerships. It is not uncommon to have extended warranties for laptops that cover certain parts of it for certain periods of time. But if you were to take a closer look at what is covered by an extended warranty, you would see such thing as “3 years replacement coverage for RAM chips” but oddly enough, most RAM chips come covered for a minimum of 3 years by the manufacturer.

Scams of that sort are very common. Retail outlets will try to sell you something your purchased item already comes with by default. This is yet another reason that makes purchasing extended warranties NOT worth it!

Who Does The Extended Warranty Work?

If you buy an extended warranty with a retailer, it will be the retailer or their sub-contractors who will perform the warranty work. During the course of my research, I have spoken with a number of people who had purchased extended warranties. Vast majority has never made any use of it. Few could have used it, but after 3 years they were not able to locate the receipts which nulled their eligibility for a warranty claim. Then there were a couple who did need to get something repaired and they each had bad experience. It was not uncommon to be told that something is not covered by an extended warranty, however even if a legitimate claim was made, the repair will be performed by their own people who often lack quality expertise and the job will be poorly done. There is nothing more frustrating than wasting time waiting to get your unit repaired, only to find out that after you got it back eventually, the issue still persists.

Conclusion: Extended Warranty – Worth It or Not?

Two things to consider:

  • Unless you are buying an item made by a company notorious for lousy, prone to breaking products (most Apple products, for example), then an extended warranty is most likely NOT worth it
  • If you know yourself as someone who looks after their stuff and doesn’t abuse it, then extended warranty is most likely NOT worth it. If on the other hand you often leave your laptop on the floor covered with an endless pile of garbage so you may end up stepping on it cause you couldn’t see it, and if you have a history of leaving your laptop on an anthill to let all forms of insects get into it, or if you use your laptop as tray for food and drink you consume while you are driving, then perhaps in such cases you should consider extended warranty. In your case it may be worth it.

In conclusion, and as a general rule – extended warranties are NOT worth it. They are extremely overpriced and in most cases end up being nothing more than money straight down the drain. If you do want to have peace of mind no matter the cost, then at least negotiate with the retailer and make sure you do not spend more than 20% of the item’s price on an extended warranty. Even so, if you are willing to admit that the item has a 20% chance of breaking down on you, then perhaps you should do your research better and opt for a brand that’s not notorious for having 20% of their product break down on consumers. If you go with a solid brand, chances that your purchase will serve you well are far greater than chances it will break.

Consider the odds. If you are buying portable electronics, chances of it getting stolen are far greater than chances of it breaking down. If you are going to spend the money, spend it on theft insurance or tracing software so you can increase the chances of recovery.

Products seldom break during the duration of extended warranty. Majority breaks while still under manufacturer’s warranty or die entirely long after your extended warranty has expired.

Given the cost of extended warranties, you are often better off using the money to start the “product repair fund” so you can take care of future issues and if none arise, use the fund towards the purchase of an upgraded version of the product.

If you make an extended warranty claim, you may not see your product for a month. If it’s something you need, such as a laptop for work, you will be screwed. You did not buy a laptop to be a month without it. Loss of productivity you will have incurred far outweighs the peace of mind offered by an extended warranty.

Finally, take a look at all the electronics you have bought throughout your life. How many of those have failed? Imagine you’d have bought an extended warranty for each of them – where would you be now? Would you have saved money or wasted it?

Buying an extended warranty is like going to a casino. The party that takes money from you, does so by making you believe that you are likely to get a lot in return. At the end of the day, whether you spent the money in a casino or for an extended warranty, it’s the receiver of your money who wins, not you. It’s a gamble. That’s why they do it. It’s because they know the odds are heavily against you. On occasion, someone wins, but vast majority lose. Though the reason why stores like Best Buy or Future Shop where I bought my laptop are able to offer near no mark up prices for products is because they rip people off on extended warranties. So I guess I better shut up now because without extended warranties, they would have to bump prices of the products they sell up to stay afloat. The more people buy extended warranties, the more it ensures low, near wholesale prices for products. Yeah, extended warranties are not worth it, but they ensure extremely low prices for gadgets I need. Keep buying, people 😉

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