Better Budgeting: Not Unless You Have Money to Burn

Not Unless You Have Money to Burn

Black Belt Stretcher (featured column)
by Larry Wiener

Extended warranties, think before you sign!

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The bottom line... only buy an extended warranty if you enjoy feeding the coffers of the chain store or insurance company offering the warranty.

A friend of mine used to sell extended warranties for a large national chain. He said that the warranties were pure profit for the company.

It makes sense. Most appliances break down either during the first few weeks you have them or stay together until long after the extended warranties end. Therefore, few people ever cash in on their warranties that the salespeople are so happy to sell them.

Appliance warranties go against the purpose of insurance. Contrary to what some people believe, the purpose of insurance is to protect you against a catastrophic expense that will wipe you out, not to help you with daily budgeting.

Insuring a $30,000 car makes sense because if your car is totaled, you would be out a lot of money. If your boom box needs a repair, however, the cost won't wipe you out even if you have to buy a new one.

Some people point to a time when they did benefit from an extended warranty. Even most people who have made a claim, however, would be ahead if instead of buying the warranty they they put the cost of the policy into a special fund. If they did this every time they were offered an extended warranty, they would soon have enough money to finance any breakdown that is likely to occur.

As with any other general statement, there are exceptions. Sometimes an extended warranty is offered at a very low price. If you plan to really make heavy use of an appliance (for example, if you are washing for a family of ten people), a warranty may make sense.

Most of the time, however, when you buy an extended warranty, you are merely adding to the coffers of the chain store or insurance company that is selling the warranty according to people I know who have sold those warranties.

So, if you think that the appliance salespersons are acting in your best interest when they offer these warranties, then I have a bridge to sell you and for just a few extra dollars, I have a great extended warranty on it.

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Editor's note: Although buying extended warranties can often be a waste of money, there are also times when you may be sorry you didn't buy one. I've had both experiences... the wasted money for an extended warranty never used, and the headache from an item breaking down with no extended warranty in place.

You need to think about each purchase carefully, think before you sign, and think before you walk away. We recently bought a used car, and added the biggest extended warranty available. The warranty cost close to $1,000.00, and the repairs since then have run over $2,500.00.

We also had a VCR once that died the week after the standard 1-yr warranty ran out, and a central a/c that broke down 6 months after we moved in. Not purchasing the home warranty on the later, cost us over $3,000. I agree with Larry, companies are making a fortune on these warranties, but sometimes they really are worth having.

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Copyright © 2001 by Larry Wiener. All rights reserved.

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