Daniel HamermeshYou shouldn’t buy the extended warranties on electronics and other goods that places like Best Buy are pushing when you purchase their products (unless you think you have an unusual tendency to buy lemons, are remarkably hard on products you purchase or are extremely risk-averse). But what about deals offered by your plumber or your HVAC firm, which for a lump sum give you a discount on future purchases? This adds a new dimension, in that we are guaranteed priority scheduling on any repairs. Unlike an extended warranty, this deal allows us to economize on our time when we need repairs. On purely monetary grounds it probably doesn’t pay for itself; but figuring the opportunity cost of my time or my wife’s at one-third our wage, the time saved more than justifies joining the “Ben Franklin Society” for the plumber, or the Silver Medallion Society with the HVAC firm. I would bet that those buying these additional services are disproportionately high-wage people; but who’s buying extended warranties?
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When selling or buying a house, there are insurance warranties that we have found to be of value. I never accept any other type of extended warrantee. Most electronics are good for about two years and, by then, the new technology has made them useless. One exception are television sets that seem to last forever making one reluctant to upgrade to the new technology yet envious of those who do.
You’re right about electronics as we learned back in the 1970s when everything went solid state. The failure pattern is a U-shaped curve. If it’s bad it will fail very soon. If not, it won’t fail for a long time. Of course, many of the big box retailers have sold stuff at cost or below in order to sell you the warranty so there’s strong pressure on the buyer.
The other aspect of this is that if it fails in year two, you have an excuse to trade up to a new generation. With a warranty you might be forced to accept a repair or refurbishment or an NOS model. Since these products tend to become monotonically cheaper, I’d rather buy a new one than keep the old.
Why do you assume that getting a company to honor a warranty will take less time than simply purchasing a repair or replacement? Which aspects of the transaction will take less time?
I think you hit it on the nail on the head, depends on who and what. My kids cell phone, you betcha. After the first sat on, wasn’t getting fooled again. One in the water, one dropped off the roof of a car…. great deal.
I wonder about adverse selection on extended warranties though. If other guyers are like me how is it paying off?
There’s one more factor in the decision of extended warranties — the grief you will receive from your spouse if you don’t get the warranty and the appliance breaks.
It really is somewhat brilliant what these big box stores have done — they have created an opportunity to explicitly refuse additional coverage so you can feel foolish about it later.
It’s also impressive how smoothly they transition from, “This is great. You need to buy it!” to “You sure you don’t want to get a warranty in case this thing breaks?”
I guess it also varies by economy/country. Where I live and run my business, it is far, far better to pay on a per service basis than make any payment in advance. The slowness of the judicial process means there is effectively no legal recourse against providers who fail to provide service. As a result, the best way to ensure that service is provided is to pay only after the service is rendered.
- Rajiv
The blanket statement of “never buying extended warranties” drives me CRAZY as a retail person because people still expect things to be perfect and aren’t willing to live with the consequences of having to replace or repair something themselves. Fine, don’t buy the extended warranty, but don’t go crying to the retailer if the item breaks out of the return policy and expecting them to take the loss instead of you. They MAY be able to deal with the manufacturer for you, but that’s a courtesy. Anyone who isn’t willing to deal with these losses or problems themselves SHOULD buy the extended warranty, and THAT’S one of the biggest reasons we offer them; not just to make money.
I am now contemplating purchasing extended warranties on appliances. I had a fridge die (after doing a repair paid out of pocket already) after only 7 yrs. The replacement required a repair after only 15 mos. I have this expectation that fridges should last no less than 10 yrs. and maybe as many as 20. The most recent repairman believes mfrs are not making things like fridges sturdy enough because it eats into sales. I’m inclined to at least partially believe that.
For consumer electronics, I never get the extended warranty, btw. Very rare to spend even $1000 and in 2 yrs I want the new thing anyway.