Don’t Throw Bricks At Your TV – Or At Your Finances
But what about buying insurance for, say, that spiffy new bicycle you picked up?
Oh yes, I’m referring of course to the often-bought-on-impulse extended warranty. Extended Warranties are technically insurance policies on your newly-purchased items so that, in theory, if something were to happen to that item, it would be replaced by the manufacturer.
Even though buying extended warranties seems like the fiscally responsible thing to do, it is actually quite to the contrary.
It all seems like a good idea, but extended warranties economically don’t make sense. For something to be worth insuring, the amount of money should be less than the amount of money it would cost to repair or replace the item. So in the case of that new 2000 inch Flat-screen LED HD DVR TV you just bought, it would only make sense to purchase the extended warranty if you were paying considerably less money on the warranty than you would if you had to replace it.
As noted above, insurance policies only make sense for really big-ticket items, and if stores are really pushing consumers to buy them, it means they are making money off of the plans themselves.
According to a 2006 Washington Post article, of the fifteen billion dollars spent on extended warranties premiums in 2004, 7.5 million of that went to the stores supporting them. These warranty providers are simply playing on consumers’ uncertainties.
So unless you like throwing bricks at your TV, extended warranties are never worth the buy. Even if you did happen to throw bricks at your TV, you still wouldn’t be covered. That’s right – accidents and “normal wear and tear” (for which people usually buy extended warranties anyway) – are not covered in most warranties (Washington Post: Unwarranted).
On the whole, extended warranties are a superfluous cost, and should be something to avoid, unless being bought in the form of real insurance policies on items such as cars, health, and houses.