It never fails. You’re about to hit the checkout with a tasty new piece of tech (maybe a television) or a needed household appliance (perhaps a washing machine) and the cashier offers to sell you an extended warranty.

Is an extended warranty worth it?

Since no one goes to a cashier to buy an extended warranty you feel kinda awkward and a wee bit under pressure. What kind of person buys a shiny new thing and doesn’t want to protect it?

“What if the screen goes kaput? Or some hardware fizzles? Or you find a dead pixel?” Cries.

Listening to the cashier’s extended warranty spiel, you already foresee several total television destruction scenarios, but the darn thing hasn’t even been unboxed yet! That’s enough to forget that on a $1,499 television the extended warranty costs just $299 — that’s 20% of the total purchase price. Yes. Twenty. Per cent.

More pressure. This time not from the cashier, but from your brain. It’s a bit of a drain, really. Should you get the extended warranty? Game of Thrones only looks awesome on an unbusted TV, BTW.

I did an interview with senior business reporter Jacqueline Hansen for CBC’s The National on the business of selling warranties.

I have a few rules of thumb when it comes to extended warranties so you’re not stuck in checkout debating insurance for your tech.

The Problem(s) with Extended Warranties

An extended warranty is generally an insurance policy. They often contain fine print clauses that can make it easy to deny coverage and may not cover common scenarios that damage tech, like dropping. In addition to a deductible, extended warranties may also charge a fee to make a claim which may eclipse the price paid for the policy.

Few people make claims through extended warranties, so these policies are a very profitable product for retailers as they add an additional 10% to 20% to the purchase price.

A 2015 U.S. study, Risk Preferences and Demand Drivers of Extended Warranties, shows the marketing and behavioural science behind why consumers buy these policies even when they are a bad deal. The study concludes people are struggling with loss aversion, a tendency to prefer avoiding losses to acquiring equivalent gains. Basically, it feels better to not lose $5 than to find $5. So it feels totally terrible to need a $50 cellphone fix and not so bad to pay $150 for an extended warranty to cover it.

But here’s the thing, new gadgets and appliances should all come with a manufacturer’s warranty which supersedes an extended warranty offered through a retailer. When tech breaks or goes bust, it generally happens in the first year of product ownership and the manufacturer should cover many issues and out-of-warranty recalls.

And then there’s the buyer’s protection offered through many credit cards.

Are you already covered? Check your credit card!

Check the benefits offered through your credit card before buying an extended warranty. Many credit cards offer a purchase protection plan that can double the warranty you get from a manufacturer, for up to one year, when you charge the full price on the card. If an extended warranty is important to you, shop around and compare credit cards benefits first — it may be less expensive to pay an annual card fee than to purchase the retailer’s extended warranty.

Before you buy an extended warranty

Don’t ever feel pressured to purchase a plan at checkout. Asking a few questions and doing a bit of research often pays off when buying insurance products.

  • Ask what’s covered and who administers the warranty. Is the insurance company easy to deal with or are there legions of customers lodging complains online? Before buying always ask for a contract copy or read the terms of the warranty online.
  • When does the extended warranty coverage kick in? Does it start with your purchase? You may find the retailer’s warranty overlaps with the manufacturer’s warranty in the first year. Two policies covering your tech in year one does little to help you in year two if something goes kaput.
  • Research the current purchase price of the product and estimate the future cost to replace it — tricky, I know. An extended warranty can be worthwhile on an expensive item you hope to keep for a long time. It makes less sense for low-cost items, when the technology is changing quickly and the replacement cost can drop significantly after a few years.

Kerry’s Advice: Skip the extended warranty.

Here’s the plan when your tech goes kaput.

Step One: If the product breaks in the FIRST year, contact the manufacturer and use your manufacturer’s warranty. A manufacturer’s warranty is designed to cover the biggest issues at the earliest possible time. Even if you’re out of warranty the manufacturer may still help you if the issue is known or is part of a product recall.

Step Two: If the product breaks in the SECOND year, go through your credit card’s product protection plan. Many credit cards add one extra year of coverage to a manufacturer’s warranty. Call your credit card issuer as soon as your item breaks. Use purchase receipts and follow your issuer’s instructions to make a claim. Depending on the authorized repair centre and your claim package, it may take a while to get your money. Follow up and be patient.

Step Three: Fix the broken thing yourself. Wear and tear is normal on furniture, clothing, and sports gear too. When I wore out my loved Fluevog blue boots, guess what? I got my kickers fixed (well, re-soled) all without an extended warranty. In Repair or replace: When does it make sense to mend the threads you’ve got? I outline the rules for getting stuff fixed on budget.

So whether your tech lives la vida loca or fizzles out over time, paying out of pocket to repair or replace your gear is just a part of life. No extended warranty needed.

Love love love,