Recently, I wrote an article for the Edmonton Journal on extended warranties at the till. I'm sure you have faced this dilemma at some time or another . . . You go to the till to pay for your purchase and just after they ring in the sale, the cashier asks, “Would you like to purchase an extended warranty that goes beyond your manufacturer’s warranty to protect your purchase?” It happens in many stores like Best Buy, Staples, Walmart, and Toys R Us (just to name a few).
One of the shocking pieces of information I found was the size of the extended warranty business; It's a $15 billion dollar per year industry. Even more shocking for me was that only $3 billion of that $15 billion was paid out in claims and almost half was paid to the retailers that sold the warranties as their commission.
Why are claims so low? Is it because people forget they bought these warranties? Or is it because new products don’t break down that much? Or is it because collecting on these policies is harder than you might think?
Problems at claim time
One of my neighbors, Carla, bought a bouncy thing at Toys R Us for $300. At the till, the cashier asked her if she wanted to buy an extended warranty for $30. The warranty was above and beyond the manufacturers warranty and provided a full replacement if the bouncy thing became damaged within 15 months of the date of purchase. Carla thought this made sense and bough the warranty.
Well before the warranty expired, Carla called Toys R Us to get a replacement because there was a hole in the bouncy thing. The customer service person on the phone said that holes weren't covered under the policy. Carla then asked the service representative her to show her where that was in the policy and she couldn't.
Carla then asked to speak with a manager and was put me on hold only to be told that a manager wasn't available but was told that the warranty only covered major seam breakage or problems with the motor. That’s not Carla was told by the cashier so she asked the customer service representative to find that wording in the policy. Nor proof was provided.
In fact, the exclusionary clause in the policy says nothing about holes, or seam breakage, or motor problems. The policy was not specific to the bouncy tent but rather a generic policy for any purchases at Toys R Us.
I thought I would do a little investigating myself to see if Carla’s complaint was an isolated incident or if there were others that felt the same way. Here’s one thread with a lot of unhappy Toys R Us customers.
I also found this story from a customer who had some problems with the Toys R Us extended warranty on a playhouse.
What went wrong?
Did the cashier misrepresent Carla when she said it would provide a full replacement? Was the policy sold at the till by someone who didn’t really understand the policy or the fine print? How many cashiers do you think have read and truly understand these policies?
How many times have people purchased these warranties because of our human instinct to avoid loss (even if the probability of loss is low)? The way these policies are sold, it’s near impossible to be rational so many of us will fall prey to the emotional influence.
At the till extended warranties have become increasingly common but after writing this article, I think I’ll stick to my response “No thanks!”
What do you think? Do you have any positive or negative experiences with extended warranties on home products?