Extended warranties are a cash cow

Electronics & appliances sales people, I’m looking at you!  You have to love the effort.  There are many fantastic, advertised deals on electronics, home theatre products, appliances, and other related items, and you don’t have to wait for the Christmas season to get them.  But have you ever wandered in to a store to pick up a “deal of the century” only to be pressured into an extended warranty?

Many of the larger chains use this tactic.  They lure you in with door crashers and great sales, only to hit you up at the end for an expensive insurance that you don’t need.

Future Shop (among others) has been in the business of selling extended warranties for years, and they don’t take “no” for an answer.  At least, not a first.  It usually takes 3 refusals from the client before the sales person will let you off the hook (not sure why our world revolves around 3 tries – not everything should be like baseball, but I digress).

Extended warranties carry high margins (around 50% profit) and as a consequence high commissions.  This is where companies and sales people make the most money.

So you walk in to a store to buy a TV.  Once you have settled on your choice and the sales is virtually complete, the sales person begins the pitch (perhaps that’s why it’s a baseball metaphor).  The pitch usually involves a statement  (not so much a question) about the extended warranty and a hard sell about how electronics are unpredictable and you can have peace of mind in case your product doesn’t perform as well as you think it should.

In reality, some may be better than others, but I believe extended warranties are for suckers. They run in parallel with a manufacturer’s warranty.  So for example, if you buy an LG Television and it has a one year warranty, a three year extended warranty only protects you for the second and third years.  Be sure you understand what exactly the extended warranty covers (they do vary).

If you want to talk probabilities, any issues with electronics or appliances usually manifest themselves in the first year.   The second, third and fourth years are least likely to produce failures.

If you do have an issue, think about the customer service that the company issuing the extended warranty provides.  What experience have you had, or have the people you know had when it comes to getting repairs done easily under an extended warranty?  I can tell you my friends, family and colleagues have not as easy time as it is made out to be.

If you use a credit card to make that purchase, be sure to see if it has any special features.  Many cards carry a clause that doubles the warranty on purchased items.  So at this point, you are paying somewhere around 10-15% of the product purchase in order to extend your warranty by a year.

Do me a favour, and put that money aside.  If you need a repair in year three, you are likely going to be able to cover it with the money you saved.  If no repair is necessary, pay off your debts or do something nice with the money!

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4 Responses to Extended warranties are a cash cow

  1. Munch says:

    Great point about unnecessary duplicate coverage. Never thought of that befobre.

  2. Heather Shiffman says:

    In September 2011, I bought a dishwasher and extended warranty from Bad Boy. In September 2014, I called their Solid Gold warranty people to report a problem. The next day, their serviceman from QA Appliances was here and determined that a part was needed. He said QA would call when it came in. That was the last time either QA or BB contacted me.
    I have called both of them, QA five times and BB once after the original call. The salesman from whom I made the purchase also called BB’s warranty people, twice.
    On each occasion there were profuse apologies and promises of followup, which has never occurred.
    Today marks eight weeks that I have been waiting. This morning QA told me that the part has been ordered. I suppose that is some progress.
    This whole thing has given a new meaning to the term “extended warranty.” Neither BB nor QA has any idea of customer service. No one took any responsibility for looking into the reason for the delay, and I have no idea why it is taking so long. QA blames BB, and BB admittedly did not authorize purchase of the part until November 6.
    Bad Boy is aptly named, and it should be Bad Quality Assurance as well.

  3. Glenn says:

    Steer well clear of these obvious scams. If you suspect you’re going to have an issue with a product, don’t buy it!!

  4. Jennifer says:

    I purchased a washing machine with extended warranty from BB. after 4 years it stopped working. On calling the gold warranty they assured me of a call in 24-48 hours. Four days later I called again and asked for an escalation. The Elite customer care individual called and scheduled a technician to come a week later. they said they have high volumes. The technician said a part was broken and the inside was rusted. How can a GE machine get rusted in 4 years? its now two days and no call on when the parts will be delivered. Dont ever buy from BB

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