The Hidden Value Of Extended Warranties

The Hidden Value Of Extended Warranties

We generally don’t recommend buying the extended warranty, because most products won’t need repair until after the extended warranty coverage ends. But extended warranties can offer real value and additional features that might be worth it to you.

Photo by trenttsd.

Harvard Business Review explains the several “peace of mind” benefits of extended warranties:

First, they allow consumers to avoid the anxiety and financial loss of an unexpectedly high repair bill. Second, if a product breaks, consumers do not have to invest time to search for a company to undertake the repairs. It’s also comforting to know that if a product is not repairable, it will be replaced. Finally, extended warranties mitigate the concern of being “ripped off” on the repair, because service companies have an incentive to fix the problem efficiently. Bottom line: There’s value in being able to sleep well at night.

Although you can set up your own extended warranty fund (put aside the money you would have paid for the warranty), chances are that amount won’t be enough to cover a full replacement if it’s an expensive product. (The 3-year AppleCare plan for MacBooks is $279, for example. If your MacBook or a part in your MacBook is beyond repair, Apple will replace it — which you wouldn’t be able to do yourself with just $279.)

Additionally, Harvard Business Review adds that some extended warranties come with additional benefits such as next-day on-site repair or replacement. This can be invaluable if your work depends on whatever you’re replacing. (And it’s one of the reasons I like business laptops over consumer ones: better warranties.)

All that said, on a strictly financial basis, extended warranties are like every other insurance product: They benefit the issuer rather than the consumer more and can feel like a waste of money if you never use it. And, like other insurance products, it’s all about your risk tolerance and if you’re willing to pay more for peace of mind and convenience. There’s no right or wrong answer.

Consumer Reports Is Wrong About Extended Warranties [Harvard Business Review]


  • If your macbook breaks within 3 years, take it the apple shop and ask them to fix it under Australian warranty laws. Save yourself the money.

  • Australian Consumer Law provides protection that is often the same as or better than an extended warranty. An example from the guide:

    A reasonable consumer would expect to get more than two years’ use from an $1800 TV. Under the consumer guarantees, the consumer therefore has a statutory right to a remedy on the basis that the television is not of acceptable quality. The supplier must provide a remedy free of charge.” (The law also stipulates that retailers must arrange transportation for large products like big-screen TVs, and that you don’t have to save the packaging.)

  • Bought a 2-year extended warranty for my plasma TV, which actually came into use when I noticed burn-in from a game I bought several months ago. Extended warranty covered the repair (replaced the entire display panel) which surprised me.

    I got the EW for the TV mainly cause TV warranties are only a year long, which I thought was terrible for a TV.

    What I wasnt happy about was that the static UI elements of the game could cause burn-in when I only played the game several hours on the weekend (watched movies/TV shows during the week).

  • Be wary. These extended warranties can be a real false economy. A quick Google search or look on consumer advice sites (like Choice) confirm mostly these are sold by retailers to offset loss leaders. For example, a TV may be “reduced on sale” but the warranty will bump it back into profit-making territory for them.

    Also check the fine print. There may be plenty of exclusions or conditions that will typically favour the seller (for example, vehicle warranties dependent on having it serviced at the dealer). Remembering their job is to make money on this. There’s no vested interest, charity or altruism on offer.

    Per comments above, Consumer Law provides a lot of automatic protections (based on “fit for purpose” and “reasonable expectation”) regardless of the stated warranty conditions of the retailer.

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