Extended Warranty Wisdom

Sales people absolutely hate me. I couldn’t be happier about that state of affairs.  It’s a small price to pay for saving big money.  You see, I am one of those people who rarely buy an extended warranty. I’d rather save my cash. In this last year of readying two children for college, moving and transitioning through life, I’ve made several necessary purchases.  A vacuum,  power drill, coffee maker,  clothes dryer, two computers, two cars, an iPod, three cell phones, and only two extended warranties. Had I purchased all the suggested “service agreements” I would have spent an EXTRA $2,000.00.

While I don’t debunk the whole of additional warranties or insurance, it verges on complete waste of money 90 % of the time to purchase these “add-on” plans. (If I lived in the sixties, I’d be burning my bra along with these warranty offers). So how do you know if you should buy one? What purchases might be worthy for insurance and what do you skip?

Considerations regarding extended warranties:

Cost of product versus cost of warranty- One of my pat rules is to view the actual cost of an item’s replacement versus its extended service agreement.  If the cost of the warranty is equal to fixing or replacing it cheap, I nix the warranty.You’ve got to weigh the options. Does the item carry a free manufacturer’s warranty?  How likely, statistically, is your purchase to malfunction?

 For example, I recently purchased a new laptop on a great buy, ($330.00). The sales manager attempted to force feed me a two year service agreement, which was roughly half of the purchase price. Hmm.

 Yeah, I know the computer retails for far more. But smarter options are befriending your local cheap computer repair geek, and uploading data to a free server such as Mozy.com. Then place your money in the bank, not in Staples billion dollar account.

  If you save only $5.00 a week, for two years (the same length as the service agreement offered), you’ve replaced the item almost twice. (I didn’t catch the last sale on the planet). In the event a computer crashes, you have then several options. Fix it via computer geek or buy new or refurbished. Then salvage your data through Mozy’s free backup/restore.  If it doesn’t malfunction, you’ve saved money and are that much further ahead. If you are a wise shopper, you’ll be picking items anyway that have a decent life expectancy.

 This likewise goes for vacuums, coffee makers, or any major appliance, and electronic gadgets.  What human in their right mind coughs up to a half the price of an item for insurance????  Really? Please sales managers, don’t insult my intelligence.  

 Cost of repairs versus cost of warranty- On large purchases, such as cars, here’s where buying an extended warranty can be beneficial.  But you have to be careful with your cash, even the midst of this.  If you have a limited budget, an expense like a transmission can be excruciating. Loss of a vehicle can cost you employment as well as be inconvenient as heck.  But do you need to pay for additional bumper to bumper repairs, plus towing and rental, etc.?

Price warranties that cover only power train and transmission. These can be cheap. (Even Mrs. Bankrupt likes them). For a trifling amount extended service agreements are available.  (One to check out is Consumer Direct Warranties, power train extended warranty $34.95 a month, 1-877-637-5488). You don’t have to buy dealer warranties. Often, these are far more pricey than you can obtain on your own. My daughter’s clunker’s dealer extended warranty was offered at a price of nearly $800.00 (on a car worth less than 2K).  Remember, sales people usually get a commission on warranties. Save money and direct buy a warranty if possible.

If you carry a power train warranty for a year, you’ve invested less than $450.00 on repairs that could cost you thousands. Seems like a decent bargain to me.  Be sure, however to shop the warranties, and review their Better Business Bureau rating as well. Chose companies, if you opt for extended warranties, with at least an A rating from the BBB. (Also look to make sure they’ve resolved any complaints).

 I carry a power train service agreement on my car, but not my daughter’s clunker we bought for cheap. If I had any major repairs, such as a transmission, I’d be spending 2K, which could wipe me out fiscally. It would take me 4.76 years to save that money at the rate I’m currently spending it on a service agreement with Consumer Direct.

 Other items to consider buying a service plan for are big ticket items, like furnaces or water heaters. My local power company has a service plan that covers all repairs and parts replacement on furnaces, for only $6.00 a month. If you’ve got a derelict furnace, likely to break down, and can’t afford a thousand bucks for a new one, $6.00 a month seems like a good bet.(You can even drop coverage in the summer when you don’t run a furnace to save more money).

 Frequency of replacement- Due to a family history of shutting phones in car doors, extended talk marathons by teenage daughters, driving over phones, and the occasional washing inadvertently with the laundry, we are rather hard on our these items. I do carry insurance on my phone and only my phone, not the kids. My cell is expensive, it was a free upgrade to the top of the line Sprint phone at the time and I’ve capped out my free upgrades for a year. I’ve since taken it in for two replacements in a year, due to malfunctions. I require my girls to pay for their own replacements if a loss occurs, (they’ve learned the joys of eBay due to this ruling). My phone’s insurance has more than paid for itself, as replacements of the same phone for system failures are covered with no deductible. However, when my free upgrades reset themselves this November, I will drop the insurance, as I will be again allowed a free new phone. I’ll wait until my phone dies to use the upgrade, and then insure the new one.  Most likely, I can gain six months without paying insurance.

 Warranties are always optional. You can ride it out and take your chances to save cash up front, but always weigh the costs in your budget of “worst case” major repairs. Shop warranties for deals and customer service issues. Don’t ever purchase insurance on an item that you can easily replace in the same time frame by saving money. Say “no” to pushy sales people. It feels good to be hated.