Are extended warranties at the till worth it?

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?

 

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace.For more information you can follow him on Twitter @JimYih or visit his other websites JimYih.com and Clearpoint Benefit Solutions.

6 Responses to Are extended warranties at the till worth it?

  1. Good article – Just thought I’d mention that some credit cards double the warranty if the item is purchased with their card.

  2. I once bought an extended warranty on a brand new Toyota Camry for $1100. It covered the drive train for extra 2 years from 5 to 7 years.

    I had 60 days to cancel and receive a full refund on the extended warranty.

    I gave it some thought and asked myself the question why did you buy a Camry in the first place.

    The light went on that the Camry was one of the most reliable cars on the market.

    I cancelled the extended warranty got a full refund.

    I have never bought a extended warranty and never will. I beleive there one of the biggest rip-offs that consumers get sucked into.

  3. I bought a warranty for my couch that I was unable to claim. Perhaps I should have read the contract with a magnifying glass before buying but I naively just trusted the sales person. I was buying the couch because my cat had soiled my old couch and I couldn’t get rid of the smell. I explained this to the sales rep who said the warranty covered pets. I specifically asked if the warranty covered the couch being ruined by cat pee. I was assured if this was to happen that the company would send over a cleaner to clean the couch and if this did not take away the problem then they would replace the couch. Well, within 6 months I was back in the same boat. I called the company just to find out that the warranty only covers visible stains on the couch, not the smell left behind. Great. That was a big waste of $150.00

  4. Even when one can claim on an extended warranty, the results are often very unsatisfactory. If it is an appliance, you will not get same day service and may have to wait a week or more until the technician is “in your area” Then maybe another week while the parts are ordered and the technician can return to install them. I also question the quality of parts received in an extended warranty claim. After 3 warranty repairs for the same part on our dishwasher, we finally gave up on the warranty and called a small business repair service, who come within half a day and had the part the next morning. MOre importantly, the dishwasher still works years later. I’ll never again by duped into buying an extended warranty.

  5. My lawnmower (from Walmart) has been out for repair, awaiting parts for nearly 2 months now. My grass is about a foot tall! I’ve had no problems with them saying it’s not covered, but the parts being back-ordered with no ETA is absolutely maddening.

  6. My wife (bless her) is an absolute nightmare when it comes to the check out and is always almost frightened into purchasing an extended warranty. The thing that most people seem to forget is that if we’re paying £500 for a new lawnmower and that lawnmower breaks down within the first year or two of use, that product is defective and we are entitled to a full repair, replacement or a refund under our basic statutory consumer rights. I know this statement is based on consumer rights in the UK but I’m sure there’s a similar ombudsman for consumer affairs in the US and Canada.

    These “extended warranties” are little more than a scam!

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