Buy a TV from pretty much any store these days, and at the end of the sale they’re going to push an extended warranty. Promises of unicorns and elves appearing if there’s a problem are likely fabricated.
But for the more down-to-Earth claims, and those who know the value of a buck, are extended warranties really worth it?
The answer is…
Depends (not the diaper)
Let’s say you’re buying a $1000 LCD or plasma
But maybe that’s not good enough for you. So let’s take a look at the math. TV prices have trended downward at a rate of roughly 25% per year. That is to say, to replace that $1,000 TV one year from now with a model that’s the same size and has the same features, it will cost you $750. The year after that? $562.50 (you get an F if you were thinking $500. As Barbie said, math class is tough!). So the question becomes, if you’re spending $200 on an three year extended warranty, after three years that’s nearly half the price of a brand new TV that has the same features as your current model ($421.88). Does this scenario save you $221.88? Yes. Is it likely to happen? Not really.
So if you’re set on warranties, keep in mind not just the percentage price of the product, but the percentage price of a possible replacement. That 20% of the purchase price in our example is 47% of the replacement price. And that doesn’t even factor in what amazing newness that $1,000 TV will have three years from now. Maybe it will make coffee. Maybe it will spew rainbows. Who knows. (It will probably be 3D, but that’s another article).
Credit Cards
It may take a few minutes to find, but most major credit cards offer some sort of warranty extension. Back when I worked at Circuit City, we were instructed to downplay this, as “just” increasing the manufacturer’s warranty. Well, if the manufacturer warranty is parts and labor for a year, and your credit card makes that 2 years, is it really worth $200 to spend on a three year extended warranty that overlaps with what the manufacturer and your credit card are already covering? That $200 then is for just 1 year, the year after the other two warranties.
AmEx, for one, double’s the manufacturer’s warranty, up to one year. Certain Mastercard, Visa, and Discover Business cards do the same. Regular Discover cards don’t, but they do offer special deals with SquareTrade, an extended warranty provider.
Exclusions
With any extended warranty, you need to check what it covers and what it doesn’t. Check that it covers the expensive parts, like the screen and power supply. These are two of the biggest failure points, and if they aren’t covered, the warranty is useless.
Some warrantys will cover someone coming to your house to pick up the product. If you’re buying a big TV, this is a great deal. Do you really want to schlep that 65-inch plasma back to the store? Me either. If you need to ship the TV somewhere yourself for service, what are the odds you’ll still have the box?
The key is always the fine print. Walmart warranties, for example, cover power surges, everyday wear and tear, other failures, and in home service. A 3-year plan on a $1,000 TV is $118. Amazon offers plans from SquareTrade that are $99-$129 for 3 years and covers purchase price refund and in-home service over 32-inches. BestBuy has 2 and 4 year plans that are $159.99 and $239.99 respectively on a $1,000 TV. Their plan covers wear and tear, pixel repair and burn in, power surge, but they “may charge a diagnosis fee.” See, it pays to read the fine print. Costco gives you a 2-year warranty, just cause they like you.
Or Maybe not so bad
Maybe the warranty is cheap. If it’s under about 10% of the purchase price, then it can’t hurt. If the warranty covers in home service, or a temporary replacement, then maybe it’s worth it. If you’re buying a Rear-Projection screen and it covers lamp replacement, then it’s definitely worth it.
Remember, above all else extended warranties are a tremendous profit maker for every store. If they weren’t, they wouldn’t offer them. This doesn’t mean they’re somehow insidious, they’re just insurance. If you pay your car insurance every month and in your life you never use it, was it a waste? Not to your car insurance company, that’s for sure. But if you do get in that accident, and they get you a new car, was it worth it then?
After being forced to sell extended warranties during my tenure at Circuit City, I’ll honestly tell you I’d never buy one on an electronics product. Especially a TV. But that’s me. I can’t think of the last product I bought that didn’t last longer than I had a need for it. But would I buy it on a new car? Well, I want to get the new Fiat Abarth 500 when it comes out, and you can bet I’ll want an extended warranty on that. I mean it’s a Fiat. Fix It Again, Tony…
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8 Comments
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@Laura,
With all due respect, I don’t know of any major retailer with a “no risk” program. Best Buy gives back “Reward Points.” but this is only the value of the purchase and 250 points gets you only $5.
HH Gregg, Walmart, BJs, Sam’s, Conn’s, Fry’s, Target, Amazon, Office Depot, Staples all have no such program. Why would you not reveal who?
As for “BuyBack” programs, these pay 20% from 1.5 years to 2.0 years from date of purchase. Can you tell me a consumer who buys a TV with the expectancy of holding it for only 2 years? Appliance? Power Equipment? Even laptop?
If you work for a service plan adminstrator as you say, your plans and programs you are referring to are a major deception to the American consumer. It takes major horse blinders to continually perpetuate service plan myths to the public.
I would also suggest that an extended coverage plan for a new HDTV unit would not be even a partial ripoff if the company/retailer in question offered a “no risk” program. I’m in the business currently and the company I work for added this feature to our plans about two years ago. If the customer does not use the plan, they recieve the value of the plan back in store credit to apply to a future big ticket, non-electronics (which I’m sure only has to do with the low profit margins in TVs) purchase. This is available on all of our plans for major appliances, electronics, lawn and garden product, and fitness equpitment.
Well I bought a 52″ floor model LCD and I have problems with it one year into owning it. I haven’t called yet, but they did throw in 4 years in-house repair. I guess my 52″ Mitsubishi is just one of those unlucky 2% that have problems. I assume they will fix it or replace it like the service plan says. I will find out….
Geoff,
You answered your own questions – any rational decision would be NO to extended service contracts or whatever psuedonym or masking title they are called. How do you feel all those years you and other hard-sell retailers incessantly plastered customers with service contract pitches. This old-school approach still lives in select retailers. The retail shopping experience would ACTUALLY be much more pleasant if both the sales teams and the retailers eliminated extended service contracts from the landscape. Let’s see who would survive. Yes, the sales teams are caught up in half-truths and deceptions, all in the name of selling the plans. It is still a number ONE job requirement at Sears, Best Buy, HH Gregg, PC Richard and others. Think of this – all those years you sold “5 Year” plans on TVs that lasted 15; “5 Year plans on refrigerators that lasted 15-20; “5 year” plans on audio receivers which last essentially forever; yeah Walmart has lower plan prices – but they are only +1 and +2 years. Do I really have to pay to guarantee my product for an additional year or two??
Physical damage aside – that has nothing to do with an actual product failure rate under normal conditions.
When Best Buy offers ONE additional year (+1) and damage and battery coverage for years ONE and TWO for $220 on a $479 laptop – that is just an in your face RIPOFF to the consumer – something that has nothing to do with customer experience, research or value. There are many examples of these across the board: How about Target charging $119 for years 1&2 on an under $300 netbook?
You’re also right – the only reason the plans are offered IS that products are reliable and the plan adminstrators only pay out a small portion of the monies received in claims. In fact the plan administrator actuaries have essentially calculated similar low repair rates as Consumer Reports has surveyed and studied extensively.
As we both know, sadly, there are enough gullible consumers out there who fall hook, lin and sinker for these pitches and put millions of dollars int he pockets of the retailers and plan administrators.
Think about this: Is there any other product or service you can think of where 70-80% of the public loaths the product, service or end result of the shopping experience? It doesn’t matter to the retailers and administrators as long as 2 of 10 people still say “yes.”
I actually do work at Best Buy and I Laughed My Butt off when I read the response to “Disgruntled Best Buy Fan”. Like Geoff, once you work at a CE store, you realize how unneccesary extended warranties, expensive HDMI cables and the such really are. That said however, I will never tell a person what they NEED to buy… That’s for you to decide. Do your research ahead of time and don’t ever let a sales person force you to buy something that you don’t feel you need.
I was in the industry for decades. Often these warranties do not cover items that you would assume. Refrigerator door gaskets, critical part, but often excluded.
My exception story is Sears. 8Years ago I paid $600 for a Natural gas BBQ. I bought their Maintenance plan for $50.
At the end of year 4 when the plan was ready to expire my ignitor failed. I called Sears, they not only fixed the ignitor but changed out just about every part you can think of. Burners, grates, grids. $550 worth of parts.
Then I got a renewal notice, so I did that. again I just now called them and they came out in did a total rebuild.
I should get 10 to 12 years out of this unit, for about $110 of contract coverage. That is a deal.
I bought an extended warranty from Circuit City. Too bad they didn’t have an extended warranty.
Best Buy doesn’t offer extended warranties they offer service plans. For certain sizes it is an in home service not to mention that if your TV is broken you don’t have to pay for a new one with a service plan. W/O the service plan you are paying for one. so let me see when you come in and your TV blew up from a power surge you will regret not having that service plan. You’re an idiot and you obviously do not care about protecting your investment.
Geoff: Yeah, right. And I don’t write web articles, I write Internet-enhanced knowledge-literature. My guess is you’re one of those people who really thinks they’ll win the lottery someday, and goes to Vegas convinced they’ll be able to leave with more money than when they arrived.
It’s all about numbers. Repair rates on plasma and LCDs are incredibly low. Lower still if you remove the incidents that appear when you take the TV out of the box and it’s in the 30-day return window.
So IF you think you could be part of the 2% or so of TVs that have an issue, or IF you think your house will be struck by lightning, and IF you don’t want to spend the money on a surge suppressor, and IF you think this will happen within the 2 or 4 years of the warranty, and IF you don’t understand statistics enough to realize that this is incredibly unlikely to happen, sure, go for it. Buy the
extended warrantyservice plan.Or you could take that $200-$300 and actually earn interest on it (you know, an actual investment) by putting it in a savings account or doing something meaningful with it. Then, if by some random chance something does happen, put that money into a new TV which will be half as much as your current one and significantly better.
Which, incidentally, is what I said in the article.
Tell me, are Best Buy’s paychecks blue like your uniforms?