Tuesday, November 5, 2013

Smart Money: Let's Talk Warranties

Warranties are an interesting topic.  They can either be the best money you've ever spent, or the biggest waste ever. To me, that means it's worth a very close look.  I know some people automatically get the warranty on any large purchase, but in a lot of cases, it isn't a very good deal.  

Image courtesy of [Joomphong] /

Most brick and mortar stores put a huge markup on their warranties knowing that a large percentage of purchasers won't ever need them.  It's sort of like health clubs - they bank on probably 75-80% of their subscribers working out a few times and then dropping out.  If everyone who had a membership showed up on any particular day, they probably wouldn't even fit into the building.  The conservative estimate is that only about $20 of every $100 spent on a warranty goes towards repair costs.  The other $80 is going straight into the store's pocket.  That's not the kind of charity I like to support - how 'bout you?

So, the first question you need to ask is does a warranty make sense for this item?  The first question you want to ask is how likely is this item going to be to break down?  In my experience, large appliances such as refrigerators, washing machines, and dishwashers very rarely break down.  I have literally had the same fridge for 21 years and I've never had a moment's trouble with it.  On the other hand, my iPhone 4 ended up in the washing machine within 6 weeks (sigh).  More on that in a minute...

Another question to ask is how expensive would a repair be?  I do always purchase a car warranty, even though I know it's a rip-off because certain car repairs can be so expensive.  However, I didn't bother with a warranty on my son's Kindle.  It was an $80 product and they wanted $30 for the warranty.  When the prices are that close, the warranty doesn't make sense.  At that point, if anything happened, you would just suck it up and put that $30 towards a new one.  

If you do decide that a warranty is a good idea, is the store version your only choice?  Nope!  Like any other profitable item, there are multiple companies that sell them.  You just have to do your homework and make sure it is a reputable company.  I found SquareTrade back when I was an Ebay seller.  They specialize in warranties on various large and small items from all major retailers.  For instance, the Verizon warranty for my iPhone 4 would have been $199 a year plus $99 per replacement and I think they didn't cover water damage.  The same warranty through Square Trade was $65 a year and just $50 per replacement.  
When mine had it's little bath, SquareTrade not only had my replacement in my hands in 48 hours, but they even sent me a 16 gig instead of an 8 gig, I think just because they were out of stock on 8 gigs.  I had a similar experience with them when the hard drive crashed on my computer.  I took it to a local repair shop and kept the receipt and they reimbursed me within a day or so.  

On the other hand, you have my in-laws.  I think they were "warranty junkies" and they made sure they got their money out of them!  I remember half a dozen times when they had their washer or dishwasher being worked on and it was all paid for with the warranty.  The reason that worked for them was because they were diligent about keeping all the receipts and paperwork (these were in pre-computer days). 

If you do go the warranty route, keeping good records is very important.  You need to know exactly when your warranties stop and start, how to renew them every year, and what types of repairs are covered.  That can save you a bunch of nice, juicy money!


Savvy WorkingGal

I am an accountant and when I was studying revenue recognition we used warranties as the example. Our instructor told us to never buy them - they were a rip-off. He was well respected in the accounting industry and has written several textbooks. So I never buy them. On the other-hand when I am not around to say NO, my husband always buys them. A couple of years ago he purchased the warranty on our new TV. I was upset when I found out about it, but I must say it has been worth it. We have a real lemon. The computer board or whatever it is called has been replaced twice.

Stefanie O'Connell

Great post! The only thing I always get a warranty on is my mac. I've always wound up brining it in and getting it fixed. Before it runs out, I bring it to the store and get anything I can replaced.

I didn't realize you could buy warranties from outside companies. I'll have to look into that in the future.

Darlene Nemeth

I've always thought warranties were a waste of money so I don't usually buy them. I say usually because I did pay for a warranty a few years ago on my new washer. I don't know what possessed me. In this instance it was not a waste of money. It was a lemon. It was repaired several times, then it was completely replaced with a new one. Bonus for me. I haven't paid for a warranty since because I still believe it to be a waste of money.

Related Posts with Thumbnails
Blog Design by Eight Days Designs