Extended Warranties Almost Always a Bad Deal

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A Dan Thompson contribution
Extended Warranties Almost Always a Bad Deal

A couple of weeks ago I took my grandsons to Toys R Us just to look around.

This would be an observation outing. And if you believe that, you don’t know
me very well. We ended up with some Pokemon cards and a cute little
mechanical hamster that fits perfectly in the chubby hand of a 17-month old.

At check out, the clerk dutifully offered an extended warranty on the $8
hamster. You’re laughing. So did I because it is funny. Who would pay $2.50
for an extended warranty on a toy that will lost in no time and promptly
forgotten? Not me, that’s for sure. I couldn’t help but think about the tiny
toy hamster when I got the following letter from Lynn:

Dear Mary: My son works for a large home improvement store. He said that

because planned obsolescence is even worse than, say 20 years ago, it is now
important to buy the extended warranties on products. I have always
disagreed, thinking that they are a rip-off and created to prey on
consumers’ fear.

My son purchased two extended warranties within the last five years on two

brand appliances (Whirlpool and Hoover) and he had to use both of them. Do
you think he’s right? Knowing this, these days should we reconsider buying
extended warranties? Lynn

Dear Lynn: It’s a matter of dollars and sense, no pun intended. I wish you’d
given me the figures-the amount he spent for those extended warranties
compared to the cost of repairs.

I won’t say that in every situation an extended warranty is a bad deal. But
we have to deal with the law of averages. It’s like insurance. You consider
your exposure, weigh the odds and react accordingly.

Keep this in mind: Sales commissions on extended warranties are quite

handsome. Why do you think that is? It’s because extended warranties are a
huge profit maker for retailers. People buy them and never use them. So
retailers give sales people a big incentives to sell them because they boost
profits. If retailers were losing money on these warranties, do you think
they’d keep selling them at the current price? No way. They’d either stop
offering them or boost the price.

Here’s my advice: Buy extended warranties only on items with an unusually
high known failure rate or that you plan to use beyond what would be
considered normal.

Example: My laptop computer. You can be sure I carry the biggest and best

extended warranty offered. I am really hard on computers. I use a single
laptop and it goes with me everywhere. I’ve been known to drop my laptops.
Once I

actually ran over my computer bag (laptop inside) with my truck. I drag my
computer bag through airports, city streets, up and down escalators, in and
out of hotels. I mercilessly pound on it day in and day out.

My extended warranties over the years have paid for themselves many times

Keep that in mind the next time you are met with a decision on an extended
warranty. Statistically, under normal circumstances, if that item is going
to fail it will do that in the early months of ownership when the
manufacturer’s warranty is in full

effect. And if you plan to use it well long beyond that basic warranty
period, an extended warranty well may be the right thing for you.

But for that tiny hamster with the teeniest little switch on its tummy that
when turned on lets the thing run around in circles? I think not.

Dear Mary: My daughter, son-in-law, and two grandchildren lost their entire
home to a flood on September 21, when heavy rain moved through their area of
Wisconsin. They did have flood insurance, but now must itemize for FEMA
(Federal Emergency Management Agency) everything that they lost. My daughter
is overwhelmed with this gigantic task along with living without a home and
many of the necessities of life. I remember a book that you had for sale
that lists the market value of popular items that people donate to charity.
I wonder if this book

would be helpful for them to establish the value of their things at time of
loss, or if you have another suggestion. Bonnie

Dear Bonnie: Oh my heart is aching for your kids and grands children. I

imagine what they are going through. To answer you question specifically,

Money for Your Used Clothing Tax Year 2016 (available for purchase online or

calling 800-550-3502) is a resource that is often recommended for this
specific use-at time of loss. Insurance companies accept these values
without question because they are so well documented and reliable. Again
this book/workbook

would be highly useful in helping them establish market value.

We can all learn from your family’s tragedy: Make sure you have current
video and or written record of your home and all of its furnishings.
Document, document,


lease assure your kids of our prayers as they go through this time of
rebuilding and restoration of their lives.

Author: Mary Haunt


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