Extended
Warranties on Electronics
You are standing at the register, having just dropped $2000.00 plus
dollars on that new LCD big-screen TV. You know the question is
coming even before the cashier asks, “would you like to buy the
extended warranty for only $239.95?”
Extended coverage for electronics come in two flavors: service
contracts and extended warranties. Warranties typically only cover
manufacturer defects. Coverage for cell phones will be covered
separately. Common names for these coverages are service plans,
replacement plans, and extended warranties. Usually when a merchant
refers to an extended warranty they are referring to service
plan – BUT
NOT ALWAYS. Several brand names have their own warranties, such
as AppleCare, where as some retail
stores sell coverage through a third-party company. BestBuy and
other stores don’t provide the service for the electronics they
sell – they ship it out to a repair company.
Most electronics come with a manufacturer’s warranty. There are two
types: express and implied. An express warranty is what they
sometimes label as a “limited warranty”. The manufacturer
explicitly details what is covered and what is not. An implied
warranty (of merchantability) is more broad, and in some states
never expires. This implied warranty means that the item should
work as reasonably expected: you buy a new blender – it should
blend. Keep in mind that all “warranties” are in fact a legal
contract. Read the terms of the warranty (contract) and not the
brochure to determine coverage.
Is the extended warranty worth the money? As with all “insurance”,
it depends.
The particulars for electronics are mostly related to risk and
benefit, but don’t forget the U-factor. Electronics are notorious
for breaking and being vulnerable to storm surges; it should be
kept in mind that the more complex the electronics the more likely
the device is to fail.
Most high-end electronics are, or have parts, manufactured in
countries with cheap labor (e.g. China, Mexico, India, etc). Buy
that fancy big-screen LCD TV and expect that the weakest link is
the cheap parts made by the lowest bidder. If your LCD TV goes, you
can expect to pay lots of $$$ to diagnose and fix it. And don’t
expect just because you bought the warranty/service you are safe.
The companies providing the coverage are not always the same
company you purchased the device from. OUCH! Buy that $2000 TV,
then it breaks in two years and you find out that the $200 you
spent on the service contract doesn’t exist? Be careful. Do your
internet research: check web blogs for customers who have
experienced this problem. What did the retail store do to
accommodate them?
Obviously, the more expensive the electronic device, the more you
want to protect yourself from loss of that item. But some consumers
fallaciously assert that “good” brand-name electronics don’t
malfunction, thus they do not need to purchase a warranty. There
are several problems with this logic: not all products from a given
brand are of the same quality; the idea of a “good” brand name is
subjective and much more dependent on personal preference
(U-factors); not all devices malfunction because of engineering
defects (lightning strikes will fry even the best made electronic
device); and going back to U-factors, what’s more important to you,
the cost of the warranty or the inconvenience of having to bring it
to a repair shop?
BENEFIT
Your costs are somewhat fixed. You spent a x-amount of dollars on
your electronics, and you don’t have to shell out more when it
breaks. You can take it to one location, or call a service number
and have it picked up. If you choose a replacement plan, you don’t
have to wait for it to be repaired.
Some extended warranties only extend the manufacturers’ warranty by
a year or two. Find out how long the original warranty covers the
device: if you only get an extra year, it may not be worth it to
you. Some extended warranties for computer electronics give you
additional tech support for the entire length of the warranty.
AppleCare provides this benefit.
But remember, this only buffers you for the first few years. If you
expect to keep it longer than the length of the extended warranty
you may want to consider simply saving money for future repairs or
replacement. DVD players (not Blue-Ray) would not be worth a
service contract. Why? Because the benefit does not match the cost
– just go buy a new $50 DVD player in 3 years.
COST
Example: Panasonic 42” Flat-screen Plasma TV ($1599.99) at
BestBuy. 4-yr service plan is
$299.99 or 18.7% of the price of the TV. Typical repair is
approximately $150 for a diagnostic fee plus labor and parts. I was
in a TV repair shop recently. It was like the Night of the Living
Dead for flat-screen TVs.
When I asked why there were so many just lying around, the repair
tech replied that the owners abandoned them because they could not
afford to repair them.
U-FACTOR
Maybe for you, more important than cost is how important is it that
you have a working device? Can you live without the item while it’s
being worked on? What if it has to keep going back in to be
correctly fixed? Do you use it for your business? Do you have
another item to temporarily replace it while it’s in the shop? Do
you usually replace this type of device every year or two? ALL
IMPORTANT questions to consider before you decide.
Replacement plans are especially nice if your down-time, or the
time
you can’t
use your device, costs you money: a businessman who needs their
laptop for work, or a physician who cannot break their schedule to
take a device to a repair shop, might find value in being able to
swing by Circuit City to pick-up a replacement laptop when his goes
the way of the Dodo bird.