Extended Debate Over Extended Warranties

The discussion resulting from my “Part-by-Part Extended Warranty Torture” story hasn’t gone quite like I expected. For one, I’m a bit surprised at how many people don’t agree — particularly when it comes to items like high-end flat panel TVs — with my conviction that extended warranties are never a good idea. But what has really startled me are comments from some professional TV repairmen who themselves aren’t big supporters of extended warranties.

“To those who think that extended warranties are never worth it,” wrote one reader, “do you have life insurance? Homeowner’s insurance? Automobile insurance above and beyond what the law might require? There is not much debate about those insurance policies, even though statistically speaking, you’re going to lose money in the long run. There are differences, of course. I’d guess that the insurance companies as a whole probably have better reputations for following through than companies providing extended warranty service. And your car, house, and life are big-ticket items. And you only live once, so ‘in the long run’ doesn’t quite apply to life insurance. But the point is that you should not broadly dismiss extended warranties solely because the companies that sell them make money from doing so. What you’re doing is buying an insurance policy against big losses. For myself, that means I might buy an extended warranty for costly items that I purchase infrequently. But I avoid extended warranties for comparatively inexpensive items since the downside is low, and I’ll benefit from the low likelihood that repair costs will exceed warranty costs on a collection of many small purchases from many sources over a long period of time.”

Of course, a number of readers took issue with that line of thinking. “Just a quick look at the numbers should tell you that this logic is faulty,” wrote another reader. “I drive a $20k car. I pay about $50 per month for auto insurance, and that gets me a $250k/500k limit of liability as well as a million dollar umbrella. Plus, I have a longstanding relationship with my insurer, and I know when I have a problem, they will help, as they have in the past. When I buy a $2k TV, they want to sell me a $300-400 warranty that lasts 2-3 years, and has a maximum value of $2k. If an insurance company charged rates that were that obscene, I guarantee they would be audited by their state and either fined severely, forced to issue a refund, or shut down entirely. Trust me — I work for an insurance company, and we were forced to issue a refund in one state because our profits were too high. Back when I worked at a big COMPuter store in the USA, we were told point-blank that every service plan we sold was basically free money for the store because 99% of the products they covered never had a problem. I was eventually let go from that store because, despite having the highest sales numbers and happiest customers, I refused to pressure-sell the service plans.”

Quite a few readers felt that while extended warranties aren’t usually worth it, there are circumstances where they should be considered. “Whether or not an extended warranty is worthwhile really depends on the cost of the original item, as well as how well the warranty is serviced. Three years ago, the charitable organization I volunteer with purchased a Toshiba laptop and extended warranty for a student we had awarded a scholarship to. After 1 1/2 years, the laptop’s display went south. CompUSA had a new display installed. Six months later, it started giving Blue Screens Of Death without warning, gradually to the point where the laptop was unusable. CompUSA had the motherboard replaced, and no other problems arose. I can’t state if this was a policy of throwing parts at the problem, or if the need for a new display and motherboard was arrived at through proper diagnostic procedures. I can say that the student was treated with respect at the store, and was not given any ‘hurdles’ over the repairs.”

But does the fact that an extended warranty may turn out well in a particular case mean that you should always get one? “In spite of what many people think, extended warranties are NEVER a good deal for the purchaser,” wrote another reader. “In most cases, as much as half of the extended warranty sales price goes to the salesman that sucked you in, and the balance is such a pittance you should not expect to get anything in return anyway. If you really appreciate the salesman’s effort, TIP him, you will both be happier! Then take the balance of what you would have paid for the warranty, and put it away for a replacement when the day comes that you need one. You will be much happier with a new component, than a repaired one, and based upon the progression of technology it will most likely be a much better component, and more reliable.”

Some of the professional service folks I heard from weren’t entirely happy with my original story. “Ed, I think you are a little lopsided on this issue,” wrote one. “You see, I service these TVs for HP, Vizio, Mintek, Polaroid and many other brands and for CompUSA, Costco, and other retailers. My situation might be unique due to the fact that I work in a very rural, widespread area under individual contracts for each repair job with several support organizations who themselves contract with major manufacturers to provide break/fix service. Never in the many repair jobs I have done on plasma and LCD TVs, has there been anything even close to the problems expressed by your readers in this column.”

But while that reader felt I had unfairly disparaged his profession, he drew a distinction between the manufacturer’s warranty repair and extended warranty coverage. “Regarding extended warranties no matter where purchased, as far the TVs are concerned, I do no really see a need to purchase one,” he wrote. “Having said that, I can see my profit margins cringe. However, to be completely honest, considering the number of TVs that are sold every day very, very few ever require repair and those that do, in my experience, 90% have been under the original warranty period. TVs, as with computers, generally die in the first 90 days if they are going to fail at all.”

Another repair professional was not surprised to see which companies had generated the most gripes in this regard. “As a service provider, I can sympathize with the people having problems with Best Buy and GE,” he wrote. “Best Buy sends members of the Geek Squad out to try and fix televisions. They are unqualified for any repair that does not consist of replacing a board. The actual Best Buy warranty is administered by NEW (National Electronic Warranty). If the customer can get past Best Buy and get to NEW, they can get their problem resolved. GE is just cheap. They want to pay rock bottom prices for service and still get quality work. We do work for them, but only take the jobs that we can handle profitably.”

The second repairman, who also works in a largely rural area, does recommend customers consider getting an extended warranty from the manufacturer, when available, rather than the retailer. “The manufacturer naturally wanting the customer to like the product, and will try to take care of the problem. Sony has extended the warranty of several models of LCD projector sets that have a recurring problem with the light engines. Sony will pay for the entire repair on sets as old as three years. This is unusual, but it is an unusual problem. One last thought — over half of all sets sold NEVER have a problem in their service life of 12 to 15 years.”

All in all, I think I still hold to the opinion that, unless you know how to see into the future, extended warranties are just not a good bet.

What do you think? Post your comments about this story below.