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Written by: Corey Janoff

Should I Buy the Warranty?

Warranties are omnipresent in our society.  It seems like anytime you buy something, doesn’t matter what it is, there is an optional extended warranty you can purchase to go along with it.  When purchasing new furniture, electronics, vehicles, appliances, airline tickets, concert tickets, hotels, among other things, many people are faced with the question: “Should I buy the warranty?”

Recently my wife and I went shopping for a rocker-recliner at Lay-Z-Boy.  I’ve always wanted a Lay-Z-Boy.  We didn’t end up with the one I wanted because “it’s ugly.”  As humans we need to get better at judging our furniture based on what’s on the inside, rather than how it looks.  But that’s a topic for another day.  After much deliberation, we ended up purchasing a comfortable chair that “goes with the other furniture in the room” for around $550.  We could have gotten higher-end option that would be even more comfortable and longer lasting, but with soon-to-be two young boys in the house, we don’t want to buy any fancy/expensive furniture at this time.  Our couch already has a couple of stains on it and we imagine it will only get worse over the next decade. 

When we went to pay for the chair, the salesperson was strongly encouraging us to buy the extended warranty.  The warranty would provide five years of protection that would cover the cost of repairs for any mechanical issues and most stains.  So, if the footrest handle breaks, or a kid vomits bright orange partially-digested Doritos all over the chair, we could call Lay-Z-Boy and they’ll send a highly skilled person to our home to fix it.  Denim stains are not covered under the warranty, so it’s wise not to wear jeans when sitting on your furniture. 

He basically made it sound like the chair was guaranteed to spontaneously combust at some point in the next five years, so we would be stupid not to buy the warranty.  Makes us question why we are buying the chair in the first place.  Seems risky.  The cost for this fabulous protection add-on: only $90, or approximately 16% of the purchase price. 

On one hand, it sounds like a good deal.  For those of you with young children, you can probably attest that there is a high probability that your furniture will get tarnished. 

On the other hand, if the furniture does get stained, we can probably Google how to remove the stain and learn how to do it ourselves.  Besides, we would probably have to wait two weeks before the Lay-Z-Boy stain-remover guy (or gal) has availability to come to our house to remove the nacho cheese colored stain.  The smell alone would probably cause us to figure out how to remove it ourselves, rather than wait. 

Finally, if the chair does get a stain on it, we will probably learn to live with it…like we have done with our couch.  And at a cost of $550, if we really wanted to, we could buy a new chair.  Not ideal, but we won’t be going into debt or declaring bankruptcy if we decide to replace it. 

Now, not all Americans can say the same thing.  According to Bankrate’s financial security index survey, only 39% of people have enough money in savings to be able to cover a $1,000 emergency expense.  This is why warranties are so commonly sold – most people can’t afford to replace their stuff if it breaks! 

Emergency Savings

If you purchase warranties for everything you buy, think about how much extra money you’re spending.  Over the last several years with major purchases, if I bought the optional warranties, I could have spent an extra:

  • $90 for a warranty on a recliner
  • $20/month over the last two years for protection on our cell phones
  • $5 to protect my $89 computer monitor
  • $1,800 for an extra 5 years of protection on our car
  • $180 for 3 years of protection on our TV.  When we bought it, it was on sale for $1,000, now it sells brand new for $479.  And it’s been more than 3 years, so the warranty would have expired. 
  • $200 for the extended warranty on my laptop.
  • $129 for the Apple Care on an iPad.
  • $15-20 each on numerous airline flights if we had to cancel unexpectedly.
  • $10/night on numerous hotel reservations if we had to cancel.
  • Who knows how much on rental car protection?  Most credit cards provide that protection automatically if you pay with your credit card. 
  • $15 each on concert tickets if we couldn’t make the show.
  • $35 for the warranty on the baby crib.
  • $89 on the stroller.
  • $59 on the car seat. 
  • $14 on a pair of $45 jeans.  I guess if the jeans rip or the zipper breaks, I could get them replaced.

The list goes on.  I literally could have spent thousands of dollars on warranties for all the stuff I have purchased over the last few years.  And so far, none of those products have broken! 

The zipper on the jeans still works.  The TV still works.  iPad is still running.  I didn’t have to cancel any airline flights.  I made it to all the concerts & shows that I purchased tickets to.  Car is still working.  I just got a new laptop, despite the old one running strong for almost six years (it was starting to slow down).  All the baby stuff is still functional as mentioned in the post from two weeks ago.    

If I bought all the warranties I was offered, I would have wasted thousands of dollars, since all of my products have lasted beyond the extended warranty period (knock on wood).  By putting the money I would have spent on warranties in a high interest savings account, on the off chance one or two of the products break, I have the funds available to repair or replace them. 

Everyone knows they should have some money set aside in savings for emergencies.  Your emergency reserve fund is your extended warranty on all of the stuff you buy.  If you have money in savings, you don’t need to spend extra money on warranties. 

Are Warranties Worth It?

For the company selling the warranty, they are absolutely worth it!  It is a great way to earn some extra money for the business, with a low probability that they will actually have to make good on their promise.  Why would they sell warranties otherwise?  If companies spent more money repairing and replacing products covered by warranties than they earned from selling the warranties, they would stop offering warranties!  Most of the time, the warranty expires before the product stops working. 

For the consumer, warranties are rarely worth it.  Think of warranties like a game at a casino (if such a game existed) where you get to draw a single card from a 52-card deck.  Before you draw the card, you must write down the exact card you think you will draw (9 of hearts for example).  Each draw requires a $10 bet.  If you guess correctly, you win $100.  Would you play that game? 

Of course you wouldn’t play the game!  This game would have some of the worst odds in the casino.  You have a one in 52 chance of winning.  If you played 52 times, you would spend $520 and can expect to win $100.  #Math.  You might get lucky and win more than $100.  You could get unlucky and not win anything. 

This is basically the same thing as buying warranties.  Maybe one in 50 are worth it and you will get a brand-new product to replace your broken one.  Most of the time though, you might as well flush the money spent on warranties down the toilet. 

So next time you get offered to buy an extended warranty, know that it is probably a waste of money.  And if you can’t afford to repair or replace the product you are buying without the warranty, think long and hard about whether you should really be buying that product.  Maybe stick the money in your emergency fund instead until you have enough saved up to cover the replacement cost. 

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