Fantastic piece on today's All Things Considered about how we agonize for months for some huge electronics purchase only to be face with 15 seconds to decide if we're going to buy the extended warranty or not.
Dan Ariel, author of Predictably Irrational, explains the psychology behind our fears that fuel too many unwise extended warranties.
It's a good piece, but honestly, I don't see anything wrong with looking at money/finance in relative terms. It is totally rational to spend an extra $50.00 to "protect" a $1000.00 investment. It is irrational to spend $500.00 to protect the same investment. So they stated the obvious, but I don't think they made a good case against buying the $50.00 warranty. It's like any other insurance product. If it's cheap enough, why not? I bought a new Peugeot back in the late 1980's and I knew going into it that Peugeots were problematic and expensive to fix----but I got an amazing disocount on a new 1988 in mid 1989----the dealer was dying to get rid of this car. I bought a Geico extended warranty for $585.00, which some people thought was foolish. Well, a head gasket and wiring harness (and a few electrical failures) later, Geico had poured over $4200.00 into that Peugeot and also given me rental cars while the thing was in the shop. I kept it 7 years and sold it with 92K on the odometer. It was the best car I ever had until it went over 60,000 miles, when it suddenly became the worst car I ever had. But it rode beautifully----smoothest ride and most comfortable seats I've experienced, and I've had three Cadillacs.
Posted by: Angelo | January 01, 2010 at 05:46 AM
For me, the whole warranty debate hits home when in the next year I go out and spend $1,200 on an HDTV. Should I pay for the $300 warranty? My neighbor has two HDTVs and he regretted buying the first warranty (never used it after 3 years) so for his second, more recent purchase, about $2,000, he did not buy a warranty for it.
Posted by: Jeffrey McMahon | January 01, 2010 at 06:54 AM
Jeff:
Wow, that's a tough one. But you might be able to negotiate something----depending on where you buy. I know that the kids selling this stuff at the big box places love selling the damn warranties. They also have some flexibility to discount the items, at times, even when the items are on sale. It's possible you can whittle the price on the product down another hundred or hundred and fifty dollars----with the understanding that you will buy the warranty. Then, in affect, it's like getting the warranty for a third or a half less. Sometimes (this happened to me at Sears), they are firm on the price until you mention that you would buy a warranty if they go lower on the item price.
Posted by: Angelo | January 01, 2010 at 09:46 AM
I bought a $3500 plasma HDTV about 5 years ago, and spent $250 on the 4-year warranty. About 3 years into its life, the TV started going out. Of course, technology moves so fast that parts for a TV that old were hard to come by, but they did track down the parts and replaced them. The repairman wanted to just replace the TV with a new one, but was overridden by his boss; since parts were available, they were required to fix it first. The repair bill was nearly $1800.
Everything worked great for a few months, then the same problem reappeared, just a couple of months before the extended warranty ran out.
This time, rather than try to fix it again, the repairman was able to just replace it. They ended up giving me a $1500 credit towards a new TV. And of course, $1500 these days got me a bigger, better LCD TV than the plasma that died, so I feel like I came out way ahead.
I try to weigh the price of the warranty against the price of replacing the item. For the plasma TV, being so expensive and such new technology at the time, I felt like there was a pretty good chance I'd end up needing the warranty. For $250, it was practically a no-brainer.
I've only bought 2 extended warranties in my life, but that one paid off big time.
Posted by: jg | January 01, 2010 at 11:16 AM
jg: Your episode (and mine with the Peugeot) shows that sometimes, a few bucks of "insurance" pays off big time.
Posted by: Angelo | January 01, 2010 at 11:22 AM