Just in time for Pesach cooking, Shani Weinberg purchased a new oven. Now the salesman was trying to convince her to take out extended warranty coverage. Not having to worry about unexpected repairs sounded tempting to her, but her husband, Dovid, wasn’t convinced. “They’re just trying to make a bit more money off us,” he said.
Is it worth buying extended appliance warranties? Do they provide peace of mind for a reasonable price, or will the buyer almost always get the short end of the deal?
The Warranty Business
The sale of service plans is a business — and a $40 billion one at that. Salespeople are often encouraged to push extended warranties because they can be big moneymakers for the company. Just like any other insurance policy, fees are based on math; statistically, the company will always come out comfortably ahead on average. They know that across all customers as a group, repairs will overall cost less than the fees collected.
But that doesn’t mean that every individual customer will lose money by purchasing a service plan. Someone prone to heavy usage can “beat the odds” priced into the warranty. And others may feel that the peace of mind from a warranty is worth it. Here are some factors to help with the decision-making.
Understand the Coverage
Whether you’re insuring your life or your coffee maker, before purchasing any policy you need to understand what you’re getting in exchange for your premiums. That means skimming the fine print and being clear on what the extended warranty does and doesn’t cover. Is there a deductible? Are there so many exceptions and loopholes that the chances are slim that they’ll actually agree to repair your appliance? And what about the convenience factor? Will they send a repairman to your home or require you to bring the appliance to a repair shop? Will they schedule the repair within a specified time frame, or will you have to wait an unreasonable amount of time for the service? The value of the insurance is very much connected to the quality of the guarantee.
Do You Already have Coverage?
Also, consider what coverage you already have. The manufacturer’s warranty generally covers a true “lemon.” In addition, your credit card company may automatically extend your warranty, often for a year or more. Protecting something that is already covered is obviously a waste of money.
Will You Collect?
A significant component of the profitability of appliance warranties is the fact that many people don’t collect what they are entitled to. Are you the type to keep your warranty information in a designated place and remember to call when you need a repair? Or would you tend to forget or not be bothered to deal with company bureaucracy when it’s so much easier to call your local technician who’s available this afternoon? You don’t gain anything from insurance that you will not follow through on.
You Don’t Need It
The primary benefit of insurance is its protection against an unaffordable risk. There’s a stark difference between health insurance, life insurance, liability insurance, etc. and an extended warranty on your fridge. If chas v’shalom a person suffers a serious medical incident or hurts someone in a car accident, the bills could wipe them out. Whereas if their fridge needs a repair, they’re out a few hundred dollars at most.
The average cost of an extended warranty for a large appliance is $126, says a quick Google. What are the chances of needing a repair during the warranty period, and how much would that repair cost you out of pocket? Taking out a $126 policy to maybe cover a $150 repair does not make sense. Even if you need multiple repairs, the cost won’t be overwhelming, just annoying. When the risk is small, buying insurance generally doesn’t pay, from a purely financial perspective at least.
Self-Insuring Usually Wins
Because of all of the above factors, number crunchers conclude that extended warranties are nearly always a waste of money. Overall, you will almost certainly come out ahead financially by self-insuring—i.e., putting money away in an emergency fund to pay for the occasional repair or replacement of household appliances. The one exception, according to Consumer Reports, is smartphones. Since they get such heavy use and their screens crack easily, paying for extended protection may be worthwhile.
Are We the Statistical Anomaly?
That specific exception leads to perhaps another broader one. We can consider whether all these warranty calculations apply to the average frum family. The warranty skepticism is premised on the fact that most appliances are built durably nowadays, and the chance of one actually breaking during the time of the extended warranty is rare—or, at least, rare enough that it’s financially profitable for companies to sell them.
But large frum families are a statistical anomaly. Our washing machines, dishwashers, and ovens get much heavier usage than those of the average consumer and therefore are more likely to break down within the extended warranty period.
Still, the issue isn’t clear-cut. Years ago, I asked one of the Schreibers of Town Appliance his opinion about appliance warranties. He replied that this is an old machlokes between him and his brother, with one feeling that it’s worth the money and the other saying it isn’t! In my own experience with extended warranties, I’ve had policies for which the response time was quick, they gave me no arguments about their responsibility to make the repair, and they fixed the problem. And then there were other cases, usually with cheaper policies, where they went back and forth looking for loopholes and took their time sending a repairman — and meanwhile, we were without an oven for two weeks.
Win-Lose or Always Lose?
So is this a case of “win some, lose some”? Or, over time, do you always lose? Today’s conventional financial wisdom says not to take out any extended warranty policies ever, and even if you lose money once or twice on an expensive repair, when you average the cost of policies versus repairs over a lifetime, you’ll come out significantly ahead. Personally, I’ve recently been leaning toward this approach. When the financial risk is so minimal, the cost of insurance doesn’t pay.
Yet, as with any financial decision, your individual preferences make a difference. Peace of mind is hard to quantify yet difficult to live without. If, after considering the other factors, you determine that buying an extended warranty will give you peace of mind, then sure, go for it.