23,400 Reasons To Avoid Extended Warranties

It’s that time of the year.  Snow is on the ground, at least for us hearty northerners. The sound of excited Christmas chatter can be heard in the hallways of schools and parents are rushing around in a frenzied hot mess in order to get all the shopping done.  Yuletide spirit lingers in the air as festive tunes are pumped throughout shopping malls in an effort to get us to part with our hard-earned cash.

 

I actually don’t mind spending money on gifts for people. I’ve read lots of posts about how to have Christmas without spending very much cash. Good on those people who are talented enough, and have the time, to make a Christmas gift for their loved ones. Me? No chance. I’m about as crafty as my two year-old, which is to say, not crafty at all. I do, however, thoroughly enjoy giving gifts and seeing the look of excitement on someone’s face when they open it up.

 

What I don’t like it getting ripped off. Ever. It annoys me and makes me mad. This is especially true around Christmas.  

 

Shopping Is Hard Work

If you were on the ball, you maybe we’re able to get some of your Christmas shopping done on Black Friday or Cyber Monday. You hopefully got some decent deals.  Yes, there are deals to be had. But I’m not always sold on how great they are. The fact the prices are so cheap those few days is more an indication of how badly we’re getting hosed the other 363 days of the year. I don’t think it reflects any benevolence on the part of retailers.

 

Or maybe you’re like me and you were rushing around this week trying to pick a few things up. Survey results from Ebates.ca say that on average Canadians will spend about $570 on Christmas. Parents will drop around $710, and those without children will spend roughly $489.

 

Probably, in your journeys to find the perfect gift, you set foot in your local electronics store. Or maybe you shopped for electronics online. You’re not alone. 21% of holiday shoppers make some sort of electronics purchase.

 

Buying electronics can be complicated. There are lots of questions to consider. And it’s no longer, “Should we go with a Sony or Samsung?” The questions are much more…technical. How many megapixels should my camera have? Should I get a 4K or HD TV? Should I go inkjet or laser for my printer? Do I want my computer to have an SSD or SCSI? How much RAM should I get? Which is cheaper? What product will last longer? Which is the best value? It can all get to be a little overwhelming.

 

Extended Warranty Extended Warranties Money Personal Finance Loss Aversion Are extended warranties worth it? How many electronics will a millennial purchase in their life A millennials lifetime electronics purchases

 

Extended Warranty-Navigating The Christmas Fire Swamp

You may be tempted to think that once you’ve decided what you want to buy, the hard part is over. You’d be wrong. The prize for having navigated through the electronics Fire Swamp is to deal with the last obstacle. The Rodents of Unusual Size. No, not the sales-people that are on you faster than a groundhog at a cabbage convention. No, the foe even more dreaded. THE EXTENDED WARRANTY.

 

As the groundhog, ahem, I mean salesperson, starts to talk about the different extended warranties offered, you may be tempted to space out and just get it. That’s what many people do. And that’s a HUGE part of a salesperson’s commission.

 

Extended Warranty Extended Warranties Money Personal Finance Loss Aversion Are extended warranties worth it? How many electronics will a millennial purchase in their life A millennials lifetime electronics purchases
A Classic Money Blunder

 

The reason we opt for extra warranties is because of something called loss aversion. In a nutshell, human beings really hate losing things.  Actually, we hate losing things even more than we love getting things. In fact, research has shown that on average, people experience 2x more displeasure from a loss than they do happiness from gaining something. We hate losing things twice as much as we like getting them.

 

Salespeople and big box electronic stores know this. So they play on our worst fears, which is that we’ll buy this beautiful new item and then it will break and we’ll be Munsoned – up a creek without a paddle. In fact, look at a screenshot I took of the Best Buy Extended Warranty page. Notice how it states that the Manufacturer Warranties “only cover you for so long”. This fans the flames of our loss aversion and we’ll do anything we can to avoid it, including something stupid like purchasing an extended warranty.

 

Extended Warranty Extended Warranties Money Personal Finance Loss Aversion Are extended warranties worth it?
Best Buy – Stoking Our Loss Aversion

 

Getting Warranty Without Paying Extra

But here’s the thing. Your product still has warranty even if you don’t purchase the EXTENDED warranty:

 

  1. Manufacturers warranty – This varies from product to product. Most items come with a basic level of warranty. A cheaper device may offer a shorter warranty than a more expensive one. Always be sure to ask the salesperson about this BEFORE buying the extended warranty.

 

  1. Credit card warranty extension – Many credit cards offer an extension to the existing manufacturer’s warranty. My RBC Westjet MasterCard, for example, doubles the manufacturer’s warranty up to one year. Yours will be different, so be sure to read the details in the fine print about your card.

 

Why The Extended Warranty Is Such A Bad Idea

It all comes down to dollars and sense.

Check out the infographic below. It details a list of common household electronics and appliances, and how long they typically last (data from techaeris.com, atdhomeinspection.com and consumerreports.org.). I then figured out how many of each device the average 30 year old will go through in their remaining years. I used the average life expectancy in Canada in 2015 (82) to do my calculations. Here are the results:

 

How many electronics will a millennial purchase in their life A millennials lifetime electronics purchases Extended Warranty Extended Warranties Money Personal Finance Loss Aversion Are extended warranties worth it?
A Millennial’s Lifetime Electronics Purchases

 

Stunning. When I looked at the numbers, I was taken aback. I’m going to go through 10 computers and 25 tablets from now until I die?  It seems like a lot. But if I think about the last 10 years of my life, I’ve had 3 phones and 3 computers. Seems like it’s not too far off. Remember, these are just averages. If you’re more frugal, you’ll have fewer devices you replace. If you’re an early adopter of technology, you may have more. And this doesn’t take into account all the cool things that will be invented before I die, that I could buy extended warranties for.

 

The Cost Of Extended Warranties

I then went to the Best Buy website to figure out how much they charge for extended warranties. The warranties they use are often sold under the banner of The Geek Squad, and they are not cheap. Here’s the warranty cost and length for each of the products listed:

 

Product Extended Warranty Cost

(length)

printer $30 (4 years)
TV $130 (4 years)
Tablet $210 (3 years)
laptop $200 (3 years)
phones $300 (3 years)
fridge $380 (5 years)
stove $180 (5 years)
dishwasher $195 (5 years)
microwave $170 (5 years)
washer $180 (5 years)
dryer $120 (5 years)
camera $170 (4 years)
video game console/Blu-ray $100 (3 years)
router $40 (3 years)
coffee maker $60 (2 years)

 

Finally, I went through and calculated the Lifetime Warranty Cost for each of the most common household devices. Here’s are the numbers:

 

Product Number of Products purchased in a lifetime Warranty Cost Lifetime Warranty Cost
printer 13 $30 $390
TV 5 $130 $650
iPad/tablet 25 $210 $4750
computer 10 $200 $2000
phones 25 $300 $7500
fridge 4 $380 $1520
stove 4 $180 $720
dishwasher 6 $195 $1170
microwave 6 $170 $1020
washer 5 $180 $900
dryer 4 $120 $420
camera 4 $170 $680
video game console/Blu-ray 8 $100 $800
router 10 $40 $400
coffee maker 8 $60 $480
    TOTAL COST $23,400

 

Altogether, if you purchased the extended warranty each time you bought one of these items, you’d spend over $23,000 in your lifetime!!!  $23,000!!! That is an insane amount of money!!! And that’s for one person. To get a better idea of which devices have the most expensive lifetime warranty costs and just how profitable these extra warranties are for retailers, check out the infographic below.

 

Extended Warranty Extended Warranties Money Personal Finance Loss Aversion Are extended warranties worth it? How many electronics will a millennial purchase in their life A millennials lifetime electronics purchases
The Lifetime Cost of Extended Warranties

 

Do Extended Warranties Ever Make Sense?

Now, some may think, “But Matt, this is money well spent. It allows me to save money by not having to replace broken or damaged products.”

 

Well, here’s the thing. The companies that sell these products, big box stores, wholesale retailers, department stores, they’re in the business of making money. And they don’t make much money when they have replaced products that are lemons.

 

But they make A LOT of money when they sell insurance (extended warranties) to people, knowing that most will never be used.

 

Don’t believe me? There are only 3 devices where the extended warranty length is longer than the years until replacement. This means that most products will last far longer than the extended warranty. So when something does go wrong, you’re extended warranty will be long over.

 

Based on this, the only products you should be buying an extended warranty for are printers, tablets and smartphones. But let’s look a little deeper. How much do these warranties cost compared to the cost of the product?

 

A Deeper Look At Extended Warranties for Printers, Tablets and Smartphones

Product  Product Cost Warranty Cost
Printer $100 $30
Tablet $700 $210
Phone $429 $300

 

Looking at these three items, I wouldn’t buy the extended warranty for any of them, and here’s why.

The printer is so cheap, I’d rather play the odds that it lasts longer than the extended warranty. If I do need to buy a new one before 4 years, so be it. It’s a non-crippling $100.

 

The tablet had me wondering if I should buy the extended warranty, I have to admit. But here’s why I won’t. It comes with a one year warranty. If you use your credit card, you can get it extended to two years. That’s only one year short of the 3-year warranty that costs $210. For me, it’s not worth it. You’re paying $210 for a 1-year warranty. Don’t buy.

 

The situation for the phone is basically the same as with the tablet. It comes with a 1-year manufacturer’s warranty, which you can double with your credit card. $300 for an extra year? I don’t think so. I’m not buying.

 

Extended Warranty Extended Warranties Money Personal Finance Loss Aversion Are extended warranties worth it? How many electronics will a millennial purchase in their life A millennials lifetime electronics purchases
Uh oh. My Wife Is Going to Kill Me!!

What If The Unthinkable Happens?

Sure, for all of these items, the extended warranty may cover a few more issues. But I don’t think it’s worth it.

 

As you can see, most of these devices will last far longer than the extended warranty coverage.

 

But Matt, what if I DO get a lemon and the product fails sooner than expected?

 

Well, here are two suggestions:

      1. Use your Emergency Fund to replace the item

About a year ago, we had an “incident” in our house. It involved a MacBook Air, a hot cup of coffee, and a sleep-deprived adult. I’ll let you use your imagination and do the math on what happened.

Needless to say, after trying to get the computer fixed, we realized it had to be replaced. We went to the Apple store and replaced it. I have to admit, it was a painful purchase. I hate wasting money. But it was made a whole lot less agonizing knowing that we had the money to cover it. We used part of our Emergency Fund to pay for the new computer.  No credit card. No line of credit. We didn’t take on any debt and most of all, we didn’t pile on any stress. Because we tapped into our Emergency Fund to pay for it, we made some small tweaks in our budget over the next few months to replenish the account. If you don’t already have an Emergency Fund, start one. Now.

 

      2. Bank the warranty dollars

Every time you buy a device, inquire about how much the extended warranty is. Take that money and deposit it in a high-interest savings account. As you buy more products, you’ll boost the amount in your account. When you do have a gadget that goes belly up before the projected time, you’ll have the cash to pay for it.

 

Both of these methods will work well. The second requires you to be more disciplined about putting the money away each time you buy a device. It could get a little cumbersome.

 

The nice thing about the Emergency Fund is that once it’s in place, you can forget about it, and when you need it, it’s there. And if you do dip into it, it can be topped up in a few months with some minor budget adjustments.

 

Final Thoughts On Extended Warranties

Bottom line. Don’t get the wool pulled over your eyes when buying household electrical devices. Stay away from extended warranties. Instead, use either of the two strategies I laid out to cover the costs if a device does fail.

 

Finally, as a bonus for both options, when you’re starting to get long in the tooth, you’ll have around 20 grand you can spoil your grandkids with. This will give you an awesome opportunity to pass on your money values to your grandkids. In addition, it’ll also solidify your status as coolest grandparent around.  

 

Looking for other ways outsmart retailers and grow your money mindset? You can also connect with me on Twitter @method_money or on Facebook @methodtoyourmoney

22 thoughts on “23,400 Reasons To Avoid Extended Warranties

    1. Thanks for checking out my post Patrick. The numbers actually are pretty shocking. I’d always kind of waffled on whether the extended warranty was a good idea, but after actually doing the research and crunching the numbers, it makes absolutely no sense. Thanks again for stopping by and for sharing the post!! -Matt

  1. Not sure what it is like in other parts of the world but another reason not to get extended warranties in Australia is Australian Consumer Law covers products for acceptable life spans regardless of what the company warranty may say. So for instance if your laptop breaks down in the 13 month of ownership odds are you are still covered as they are seen as a 3 year product by the Taxation Office (and therefore the law) regardless of if it only came with a 12 month warranty officially.

    1. Brandon,

      Wow! That is amazing! Definitely nothing like in that in Canada and I’ve never heard of anything like that in the States. Is that paid for by the government? I would think that’s pretty expensive, but a sweet deal for consumers! Do they even have extended warranties in Australia?

      Thanks for checking out the post and commenting! I appreciate it! -Matt

      1. Nope, not paid for by the government, it’s mandated under consumer law, so it’s the seller’s responsibility to comply with the minimum warranty requirements (this is probably part of why stuff tends to cost more here in Australia, as the retailers bury the cost of this mandatory warranty into their selling price).
        That being said, they do still have the extended warranty scheme here. Most consumers aren’t aware of the minimum warranty requirements (and it’s not like the retailer is going to point it out to them), so the sales people just talk about the manufacturer warranty and then try and push the extended one onto you.

        1. Hmmmmm,

          That’s interesting. I totally think that those costs are getting buried in the cost of the product. Retailers are not losing money in the whole deal. Surprised consumers don’t know about the mandated warranty. Maybe a blog post in there for you!

          Thanks for sharing and giving some insight into how things work down under!

  2. Great advice! We buy enough things over the years that the times when we could have actually used a warranty is crazy low. I hadn’t looked into the credit card warranty extension before — that’s something I’m going to have to check out!

    1. Adam,

      Thanks for checking out the post. It’s true, the chances of something breaking before the warranty expires is so low, it really just doesn’t make sense. And definitely check out your credit card. I hadn’t really looked into it before this. Each card is different so just be sure to read the fine print. Thanks again for stopping by! -Matt

  3. Great post man, and kudos on digging into the numbers and breaking it down. I don’t think I’ve ever fallen victim to an extended warranty in my life. This just confirms why I’ve rolled my eyes at them all these years.

    Nice infographics too!

    1. AF,

      Thanks for stopping by and checking out my post. I really appreciate it! You’ve been crushing it by avoiding the warranties and now you have the numbers to back up what you knew to be true all along. And thanks for the encouraging words about my infographics! -Matt

  4. Very cool post! Would like to add that most companies test their products, then make the warranty a little shorter than the average fail rate. Ie, they determine a TV will work for 4 years before anything burning out, so their warranty is 3 years. So, on average, you probably won’t even use it. Those tricksters!

  5. How about cars? We are thinking about ditching Carshield because it costs about $200/month. We don’t have the emergency fund in place yet and our cars are high mileage. Deductible is $100 for a breakdown and covers up to $7500/vehicle. The contract will be paid in 2 years but good for 5. Right now the payments are on a 0% credit card but it will catch up to us later in 2018. Trying to catch up savings while protecting the vehicles. We have no cash for a major repair or a new vehicle right now. it’s a big goal of mine to straighten out the mess and probably not buy an extended warranty in the future.

    1. Martin,

      Thanks for the comment! Not being totally aware of your current financial decision limits the ability to give a great answer. It may not be a bad idea to consult with a professional who can help.

      That said, $200/month seems like A LOT of money to be paying for an extended warranty. If I were you, the first place I would look would be in my budget. I would try to find money there. I’m going to be having a post come out shortly on that and I’ll have a free guide to finding invisible money that you can download. I would definitely check that out.

      I’d use some of those efficiencies to build up my emergency fund to $1000 or so (enough to cover a major repair on an older vehicle) and then I’d probably cancel the Carshield. I’d then roll that money into building up the emergency fund.

      It sounds like you are wanting to do the right thing and are aware that some changes need to happen. That is a huge first step! Thanks again for the comment Martin!!

      -Matt

  6. Very detailed! I have always known that the extended warranty is usually a losing proposition. This is a great write of as to why.

    Hope you are doing well in that cold and snow.

    1. Thanks DM,

      Appreciate you stopping by to check it out.
      We’ve actually warmed up quite a bit from a week ago. We were at-40. Yikes!

      Thanks again for checking out my post. -Matt

  7. What a great post! Definitely confirms with numbers the gut feeling I’ve always had when passing on extended warranties. I appreciate you breaking it down so well, and nice job on the infographics. Fascinating to see how many products I’m likely to go through in my life too… guess my ” future stove and dryer replacement fund” needs some boosting 🙂

    1. B.E.,

      Thanks for the comment. I was shocked too when I saw the numbers for how many products we buy in a lifetime. It really is pretty crazy! I hear you about the appliance funds needing to be pumped up. Nice to be able to have an idea of how often they need boosting so that we can plan for it!

      Thanks again for taking the time to check out the post and for commenting. I really appreciate it. -Matt

  8. Calculating the lifetime cost of warranties was a great idea! We decline purchasing them as well. I can think of two times when an item has broken that the warranty would have been nice to have, and one of them was in that extended credit card warranty period but I didn’t know about that bonus coverage at that time. Nice infographics, too.

    1. Carol,

      Thanks for commenting. Ya I totally hear you about there being a few times when the warranty would’ve covered the damage, but like you said, you have credit card warranty and if you’ve got an emergency fund, you should be good to go! Your natural intuition to avoid the extended warranties was spot on, and now you’ve got the numbers to prove it! Thanks again for the comment! -Matt

  9. This is an informative and helpful post. I have seen a lot of analyses of consumer warranties on electronics over the years, but I have never seen one with so many statistics and so much in-depth analysis. While the frugal part of me likes the idea of keeping electronics a long time and using an extended warranty to repair them, the realist in me is persuaded by your analysis.

    On the subject of car warranties (raised by another commentor above), I agree with you that $200 per month is not providing value. I just purchased a used 2016 Toyota Sequoia, and paid $1000 for an extended warranty that protects the vehicle up to 125,000 miles. I believe that warranty is worth the peace of mind considering the total amount I spent.

    Thanks for an excellent post.

    1. Dividend FIREman,

      Thanks for the comment and the kind words! Your point on car warranties is well taken. $200/month seems very steep, but a one-time fee of $1000 doesn’t seem unreasonable to me. There is also the fact that for some people, the peace of mind is worth taking a bit of a hit in the wallet for.

      Thanks again for taking the time to check out the post and for commenting! -Matt

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