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. The first thing to keep in mind is Consumer Reports has found that flat panel TVs of both technologies are fantastically reliable.  The odds of anything going wrong in the short term is highly unlikely. Most issues with a TV you’d see right out of the box, which is always covered by any reputable store’s 30-day return policy.

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…

By Geoff Morrison

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