Are Extended Warranties Worth It?

Whenever a person makes a sizeable purchase, such as a a computer, an appliance, or even a new car, they’re bound to hear these words: “Would you like to purchase an extended warranty?”

On the surface, an extended warranty plan might seem appealing, especially for very pricey purchases. And if the buyer is in a hurry (or if there are lots of other customers in the checkout line behind them), they might feel pressured into buying a plan from the warranty company. And most people have dealt with those annoying spam calls that start with “We’ve been trying to reach you about your car’s extended warranty” on more than one occasion.

But do experts actually recommend buying extended warranties? The short answer? No. The longer answer is that there might be some scenarios where an extended warranty is worth the purchase price, but it’s essential to evaluate the pros and cons first. This guide examines some of the most common drawbacks to warranty plans and when it might be worth it.

To Get an Extended Warranty or Not: Reasons It Might Not Be a Good Idea

Here are a few of the biggest drawbacks to an extended warranty plan.

Warranties don’t always have practical terms

Many warranty plans are very limited in what they cover, especially with a standard warranty plan. In most cases, they don’t cover general wear and tear or accidents. For example, someone purchasing a new or used car might get sucked into a warranty plan that doesn’t cover general car maintenance like oil changes and dealer-recommended care. Or maybe those vehicle needs are covered, but they’re required to use the dealership’s maintenance department, where they’re pressured into extra repairs that cost more than they would elsewhere. Or perhaps the warranty only applies under a certain mileage threshold.

Another common scenario is when someone buys an electronic device, such as a computer, tablet, or smartphone. Maybe they’re prone to dropping their electronics, so they buy a warranty plan without reading the terms. Then they drop their phone, try to make a claim, and discover that the warranty plan doesn’t cover accidents, so they have to pay for the repair themselves. Or maybe their headphones give out after wearing them to the gym routinely. The warranty plan might deem that to be general wear and tear and refuse coverage.

Of course, there are some plans that include these terms, but often there’s an extra cost involved.

Many people rarely use their purchase protection plans

The first problem with protection plans and extended warranties is that they rarely get used. Last year, Consumer Reports’ Tony Giorgianni spoke about a Consumer Reports survey on this very subject. “Our reader survey shows that products don’t break down that much during the service contract period,” he said, “And even if they do, it doesn’t cost that much more to repair them than it does for the contract itself.” In short, warranty companies are banking on people buying peace of mind even when they don’t really need it.

If there’s something obviously wrong with a product, most people will find out before the general factory warranty (usually included with the purchase) expires. For example, if a TV has dead pixels, a fridge doesn’t make ice, or a dryer doesn’t produce heat, the buyer will know shortly after purchase. And chances are, if the product makes it past the factory warranty, it’ll probably last a few more years anyway, negating the value of extra coverage through a warranty plan.

Another simple fact? Most repairs that would be covered under a warranty plan aren’t all that expensive; often they’re more affordable than the insurance policy was. If a person only takes advantage of the warranty once, it might not be worth it for them to sign on that dotted line.

Many people upgrade their purchases before the warranty period ends

The second drawback of a warranty plan is the simple matter of progress. This is mainly true for electronics.

For example, by the time someone realizes that they need to make a claim on their three-year extended warranty for their brand-name digital camera, there’s a good chance that they’ll want to upgrade to a better camera. They might even discover that they can buy an even better camera for a lower price than the first one because the technology has improved so much. Why would someone make a claim against the warranty they paid for when they can easily afford a new device?

So are warranties ever worth it?

The short answer: it depends on the warranty plan in question. Extended warranties that do cover accidental damage are often a good investment for certain tech, such as laptops, smartphones, and expensive tablets. For example, many Apple enthusiasts find that Apple Care is a good deal, especially for the devices they rely on the most. Some car owners find it helpful to buy the dealer’s warranty plan for used vehicles when the plan includes extras like free safety checks or roadside assistance.

But here’s the key: research. Prudent buyers will take time to understand the warranty plan they’re considering. They’ll ask key questions. For example, does the warranty cover accidental drops? Spills? How long does it take to replace or repair the item that’s covered by the warranty? When does the warranty kick in? Does it overlap with the factory warranty? If these questions aren’t to their liking, a prudent buyer will probably skip the warranty plan.

A final thought on the subject: As the saying goes, “The house always wins.” Companies aren’t usually in the business of losing money, and extended warranties are no different. The simple fact is that these companies are making far, far more money on warranties than they’re paying out, and the fact that they’re pushed so heavily should be more of a sign than anything else.