Are extended warranties worth it? Retailers are pushing extended warranties with more fervor than ever, and consumers are buying. But in almost every case, they are a bad deal.
Extended warranties are everywhere. It seems like every retailer is offering them now, even for purchases as small as a $30 toaster oven. And according to research done by Protect Your Bubble, a third-party gadget insurer, 40 percent of U.S. buyers are taking those stores up on the offers.
Sales of extended warranties have seen between 15 percent and 20 percent annual growth over the past 3 years. And there’s good reason for retailers to push them: Extended warranties are mostly just a high-margin up sell for the companies that provide them. And in almost every case, they are a bad deal for consumers.
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Why Extended Warranties Get Such a Bad Rap
“Insurance companies [and extended warranties] only make money if the company collects more money than it pays out,” says Professor Bruce Clark of Northeastern University’s D’Amore-McKim School of Business. Companies that offer insurance and extended warranties have teams of actuaries who calculate the odds that a consumer will file a claim. And the odds aren’t in our favor.
It’s this entirely accurate impression that we’re gambling in a rigged game buying an extended warranty that give them a bad rap. It’s hard to visualize the benefits until you use any form of insurance, and even when you have it, you hope to never need to use it.
Extended Warranties – A Good Buy for Klutzy People
Whether or not you should consider extended warranties might be better based on the type of person you are than the types of products you’re buying. Are you klutzy? Prone to breaking things? Do you have unusual usage habits for your gear? Then extended warranties may actually be a good fit for you.
“A friend of mine bought smartphones for himself and his teenage son, but he only bought the insurance for his son,” says Clark. Think about it in the context of your car, for example, he suggests. “If you are an unusually heavy user, for example, driving twice as much as the average person, then an extended warranty based on time [not miles] may make sense.”
Most of us aren’t klutzes, and the way we use our technology is fairly close to the norm. That makes us the type of consumers companies want to sell extended warranties to because we’re unlikely to make claims.
So, is there a time when you should actually consider spending money on extended warranties? Maybe! Read the rest of the story about extended warranties on AOL Daily Finance and find out why you may want to buy an extended warranty and the best time to do so.
Note: This article originally appeared on AOL Daily Finance and is reprinted with permission.