Extended Warranty—Good Deal or Rip-Off?

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Recently, I stopped into a popular toy store to get a little something for my grandkid, Sam. Yes, I am one of those grandmothers. We found the cutest ever toy shaving kit, just perfect for bath time. The price was under $10. At checkout, and without missing a beat, the sales clerk inquired if I would like to add an extended warranty for just $4.79. Seriously? I laughed. She winced. I apologized, but really, I couldn’t help it.

An extended warranty sounds like a good thing, and that’s because it’s designed that way. While I cannot say that every extended warranty would be a rip-off, that’s the way I want you to start thinking of them. Every time you are offered an extended warranty, think: rip-off! Then, if you have doubts, make that warranty prove to you otherwise.

Failure Rates

Products for which there is an extended warranty always come with a manufacturer’s warranty. We know that if a product is going to fail, most of the time, it happens at the start of that product’s life, not in the time after the original warranty expires. That means you do not need the extended warranty. As a rule, rely on the warranty that comes with the product. Then rely on your own independent research.

Profit Margins

Ever wonder why retailers are so diligent in offering extended warranties? Wonder no more. It’s all about—now, here’s a real shocker—money. Extended warranties average a 70 percent profit for the retailer. Plus, if they can get you to finance the cost of the extended warranty, the retailer ends up profiting even more.