How to Spend Money Wisely » Shopping

Extended Warranty on a TV? No Thanks!

First, let me start off by saying that I’m the worst personal finance role model after purchasing my second television in the last two years. What can I say? We recently moved into a new house and unfortunately there is a bit of lifestyle inflation that comes along with the bigger place.

For years I avoided the temptation to buy a big flat screen television, until I was finally seduced by a 50 inch, 1080p plasma HDTV. It was rated one of the top TV’s in the market by Consumer Reports, so when I saw it on sale for $749 at a local electronics store I jumped at the chance to buy it.

The Extended Warranty Pitch

My last experience buying living room furniture and a television led to a major frustration over how retail stores aggressively push their extended warranties. I got the hard sell from both the sales person and his manager, and after turning them down I received two phone calls several months later from the retail financing division trying to convince me that it wasn’t too late to buy the extended warranty before the manufacturer’s warranty expired.
Whenever I go shopping, especially at a furniture or electronics store, I am prepared for the extended warranty pitch and won’t fall for their clever sales tactics.

This time I negotiated the price of the TV along with delivery, wall mount bracket and installation for an additional $200 (regular $350). Before the salesman wrote up the order he went over the extended warranty and explained that these days it will cost more to repair a television than to buy a new one. The extended warranty would cost $279 for an additional 4 years after the 1-year manufacturer’s warranty expired.

When I declined his offer, he went on to explain how if I didn’t end up using the extended warranty I would receive store credit for the same amount. Sounds like a good deal, right? Except the retail store still wins, since I would be forced to go and buy another product with the store credit and could potentially spend even more money. Not to mention the fact that I would probably forget all about the warranty and the store credit after 5 years.

Peace of Mind at a High Price

A lot of money has been made by retailers’ offering peace of mind to consumers at a high price. Financial institutions offer 5-year fixed rate mortgages, even though a variable rate saves homeowners money nearly 8 times out of 10. Because they’re selling “peace of mind” on the fear that interest rates will rise, the majority of homeowners pay a premium by taking the 5-year fixed rate mortgage.

For an extended warranty to make sense for consumers, the product will need to break between the time the manufacturer’s warranty expires and the extended warranty runs out. Most products will fail within the first 30 to 90 days, while still covered by the manufacturer’s warranty.

The probability of your product failing at all is extremely unlikely for today’s electronics and appliances. According to Consumer Reports, an LCD or Plasma television has a 3 percent chance of needing repairs in the first 3 years. Those are pretty good odds.

The cost to repair your broken product would have to be greater than what you paid for the extended warranty, and in most cases the cost is the same or less than the cost of the warranty.

Self Insure Your Purchase

Rather than the retailer profiting by selling you an extended warranty on your appliance, electronics or furniture, a smart move would be to set aside the cost of the extended warranty in your high interest savings account. The money will be there if you need to make a repair and if you don’t need it then at least you’re the one profiting, not the retailer.

Just make sure you save the money after a few years and don’t turn around and spend it on another TV like I did.

Comments

  1. cashflowmantra

    I have tended to purchase extended warranties and actually have good luck with them. I suppose that is because with 6 kids, the dishwasher gets used twice per day and we do 3 loads of laundry each day. This means that I am using the equivalent of about 10-15 years worth of wear in the 4 or 5 years of the warranty. I have gotten $360 worth of a new dishwasher motor for $89 warranty and about $300 repair on my washing machine for $109.

    I also got an extended warranty on my last Chevy Suburban negotiated into the price of the vehicle (hard to figure actual cost) but I didn’t have to pay $1800 in repairs when it had 80,000 miles on it.

    For many computers and TVs, I skip it. It is all about figuring out the usage and replacement cost.

    • Echo

      @cashflowmantra
      With 6 kids and all of those dishes and laundry, I might opt for the extended warranty too!

  2. ronika

    Ugh – the extended warranty sales pitch drives me crazy, especially when this is pretty much all the salesperson has to contribute! I have learnt to pre-empt this by telling them in advance that I’m not interested.
    Self insuring is a great option.

    • Echo

      @ronika
      I agree, some of these sales people put everything they’ve got into their extended warranty sales pitch, which is basically trashing the product that I’m trying to buy from them.

      In this case, I let him give me the pitch, and then he went to check about a discount on the wall-mount and installation – thinking that I was going to purchase the warranty too, and then when he came back with the discount I told him great, but I wasn’t interested in the extended warranty. He didn’t look happy.

  3. kody @ financial money tips

    ya i never buy those extended warranties either to tell ya the truth. I have always thought they were a waste of money. I had my xbox 360 since it first launched and its still running smooth. Along with my tv, computers, and other electronics.

    • Echo

      @kody
      It’s true that if your electronics are going to fail, it’s going to be within the first few months when the manufacturers warranty still applies.

  4. Paul N

    I have a credit card which doubles the warranty period on purchases. I use that for electronics etc. I just make sure I pay off my purchase every month 100% to aviod any interest charges.

    • Echo

      @Paul
      Great idea to take advantage of your credit cards’ extended warranty feature, and even better idea to pay it off in full 😉

  5. krantcents

    Electronics pricing keeps going down and something new comes out every year. You are more likely to want to replace the TV then have it repaired.

    • Robert

      I don’t agree. I have LCD TV for over 6 yrs now, and it’s still working fine. Only difference between new ones and mine, is connection to the internet, everything else is the same. So you should get extended warranty for your TV.

  6. J.B @ My University Money

    Well I sure don’t blame you for getting a 50 inch plasma. I have one and its great! As for the warranty sales pitch, I hate them too. Here’s what I did.

    I am renting at the moment so I have a tennants insurance package, if anything goes wrong with anything in my place (ex: spilt wine on the couch, or if I accidently hit the tv with a hammer) , it gets covered.

    So if the TV does go for some reason after the one year mark, I’m still good to go.

    Plus when it happens you get paid out for whatever is equivelent in the market!

  7. My Own Advisor

    Nice post!

    I with ronika – the extended warranty sales pitch(es) drive me crazy.

  8. Troppus

    Warranty companies put out incentives for the sales staff to make the sale…so yes they are going to be aggressive.

    As a real estate investor, the only extended type of warranty I see valuable is on plumbing, heating and a/c…I receive a great value for the last 5 years with one of my rental properties with the Enbridge/Direct Energy heating, plumbing, cooling protection plans.

    Need to weight out the options – looking at the rate of TV you watch, the type of TV, etc. as some of the TV’s out there won’t last 4-5 years before “burning” out.

    Great information shared. Thanks!

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