Are PiP Extended Warranties Worth It?

I seem to remember reading in Consumer Reports that an extended warranty MIGHT be worthwhile on plasma TVs, because of issues with pixels burning out.

If the Ethernet on my iMac had gone out just a few months before it did, an extended warranty would have covered it. I did not have the warranty, and in any case, it happened past the extended warranty period. They wanted $2,000 to replace the entire logic board. Instead, for $20 or $30 (don't remember exactly) I bought a thumb-size gadget that plugs into the USB and does Ethernet.

The one time I bought an extended warranty (for a treadmill -- I got suckered in by a very nice saleslady) I never used it. Eleven years later, the treadmill, used several times a week, is still working fine.

I suspect that for most things, there is a reliability curve where most problems occur either during the basic warranty period, or after the extended warranty period. That is, serious defects show up pretty early, and wear-and-tear problems come much later. Relatively few problems show up during the extended warranty period. That makes them a high-profit item for the seller. It sounds really great to buy extra protection, but it's significantly worse than Vegas odds.

As Allan points out, if you really cannot afford a loss in that time frame, you might want to consider it even with the lousy odds, but I'd say that if you cannot afford a repair, maybe the item is too expensive for you. Spending your reserves down to zero is IMO a bad idea.

 

There is another aspect of extended warranties (aka insurance) rarely discussed: People who buy them tend to care for the insured object with less attention than the self-insured; are more likely to demand repair for minor malfunction; and when a repair is needed to not price shop the repair.

So in total the warranty premium includes marketing and fixed costs of the program, profit to the supply chain, and additional costs to cover a group of expensive consumers.

 

I mentioned this in a previous thread on the topic but for what it's worth, i'm convinced I sold my 2005 Prius which had 6 months left on the extended warranty for a premium and with significantly greater ease because of the warranty. I'm not saying it's worth the full premium, but in addition to the peace of mind of having the EW, you will also have a much easier time reselling the car if that is something you care about.

 

On the flip-side, how much would it cost you to buy the new owner a 6-month warranty at the time of sale?

 

Daniel - would you mind explaining that? Thanks.

 

I bought an extended warranty for 2011 in January ("95% percent of those who buy here get one!") and I think it was likely a mistake. As many have said, from the insurer's standpoint, it is a matter of actuarial risk so they price it accordingly. Given the Toyota's reliability, from a statistical point of view, it is not a good deal. I just allowed myself to get suckered I think. It is likely that I will not see a monetary advantage.

 

And this will only be true until the warranty companies figure out the real risk of pixel failure. After that, the costs will be back in line.

Tom

 

If you are still within the standard warranty, you can get a full refund on the extended warranty, or at least you could back in 2004.

 

And the spread of pricing is so great. For PiP I think it's around $1k on the low end offered through PC here, up to over $2100 at the point-of-sale dealership...

 

A better deal would be for 20 of us to pool together $400 each into a self-insurance pool. I think $8,000 would cover the long-term failure costs of 20 Prii.

 

Well, I was curious and warrantydirect offers two levels of service for my exact car/mileage (2005 Prius with 90k miles) and their prices are $1,076 (low) or $1,446 (high coverage) for SIX months of coverage. I paid under $1k for a 7 year/100k service plan using the direct PC links back in 2005 and just did once again.

There are a lot of solid arguments against buying the EW so i'm not trying to advocate for one, i'm just saying that my personal experience was positive. I liked the piece of mind, and it absolutely enhanced my ability to price and sell my car for resale.

 

I don't drive my 2004 Prius much now that my daily driver is a 245-mile EV. So the tiny 12-v. battery gets stressed a lot by the parasitic drains. To protect it, I bought a very small battery charger called a battery minder from my Toyota dealer. The dealer installed a pigtail connector from the battery, and emerging out from the mat at the back of the car. I plug the minder into the pigtail and into the wall outlet, and it automatically keeps the 12-volt battery charged and happy, and presumably will extend its life under the conditions of not being driven much.

I run the cord through the driver's window so I won't forget to unplug.

Even though insurance is always priced to make money fo the seller, when risks are high or the cost of a loss is great, it can be worthwhile to buy the insurance. That's why we all (well, most of us, anyway, if we can afford it) have health insurance. Over my lifetime I have lost a lot of money in health insurance. If I had saved my premiums I could have paid cash for my medical care and I'd be ahead now. But there's always the possibility of that one really big illness with overwhelming cost. Same with fire insurance on the house. Some insurance is a good idea. CU was saying that because of the high pixel failure rate, plasma TVs might be one of those cases.

The smaller the pool the greater the risk. But insurance pools do exist. They keep the cost lower than commercial insurance, but at a somewhat greater risk. Of course, compared to no extended warranty, such risk sharing is probably a good idea, if you can reach agreements concerning the administration of the pool. Disagreements among friends over money can ruin friendships. And state insurance regulations might become an issue if it's more than an informal arrangement among friends.

 

For most of us, the extended warranty will be money completedly wasted.

 

I don't see it as wasted money. If I decide to sell/trade my PiP before the extended warranty expires, the warranty will make the car more valuable and easier to sell. Plus, it will give me peace of mind after the normal warranty expires.

 

Are PiP Extended Warranties Worth It?

No.