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In general they're a scam.

Posted by RGA (R) on September 16, 2009 at 20:21:09

In Reply to: Extended Warranty...worth it? posted by Rich S. on September 10, 2009 at 15:12:18:

If you take all of your household goods and bought a warranty on all of them - you would likely pay double or triple what the overall repairs would have been. Warranties warrant the trough period of fewest breakdowns. Take CD players. They typically fail in the first month. Then failure rates drop for the next 4-5 years to next to zero. Then begin to rise beyond year 5 and increase. (Picture a U shaped period of breakdown). The bottom of the U is where warranty companies live - they charge high prices exactly during the time when products fail the least. That's how they make their money and why places like Future Shop push so darn hard selling warranties.

But of course worry sets in and depending how much it costs and the fact that we live in a disposable society you might say to yourself that if you pay 1/5 or 1/6 the cost of the item for a long warranty of 4-5 years that it might justify itself to you on piece of mind.

However I'll give you another example. About 4 years ago I bopught a 3.2megapixel Canon Digital Elph camera that I paid $499 for. The extended warranty they tried, without success, to sell me was about $150 for 2 additional years. Think about that. There is a $150 I could have thrown out the window. The camera still works perfectly but let's say the camera did fail in year 3. Sure they replace the camera - but had I just kept my money I could BUY a much better camera for $150 than that camera I paid $499 for.

You see it with virtually all goods sold in big box outlets. A couple years ago getting a decent laptop under $1000 was impossible. Now you can buy a laptop for $399 that will destroy a 3 year old $1500 laptop. The warranty they charged would have been in the $300 range. You might lose $100 if it blows up in year three - but people often look at what they PAID as a loss.

Try not to do that. Yes I paid $500 for the camera and if it breaks drat - but 4 years late a $150 camera kills it (and I get to choose which $150 camera I buy - not the store deciding which camera to compensate me). Televisions DVD players etc are all exactly the same. Think of the "replacement cost" not the purchasing price when you factor in whether or not to by the warranty.

Now if the warranty is dirt cheap that's another matter. I bought a $1530 laptop and for a two year extended warranty the price was $50. For $50 and because it's a product that gets jostled around that seemed reasonable and I paid it. Plus it had a few complaints on forums about the graphics card eventually failing so there is a known long term issue that affected all NvIdia cards. If your TV is $1500 and they charge $150 to go from 1 year to 4 or 5 years then that is reasonable - especially if it's a plasma. But just remember that 5 years from now you could buy a $500 TV that will be considerably bigger and better television.

Edits: 09/16/09

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