Reason #2 for not buying an extended "warranty"

Unlimited Warranty Corporation is going under and will not pay warranty cost. Unless you bought it from a dealer who will dip into their own pockets (unlikely) those who paid for those warranties are just out of luck.

Of course that is not much different than finding out that it does not cover what you need done.

#1 reason is they are a poor investment. and generally pay out less than 50? on the dollar.

On average you would be very lucky to get 50cents on the dollar!

Years ago, automobile manufacturers offered a 90 day or 4000 mile warranty. This was generally sufficient to cover manufacturing defects. Failures follow the negative exponential distribution which means that one would expect more failures at first, but as time goes on, the number of failures decreases drastically until the vehicle is near the end of its useful life. Chrysler took advantage of this back in 1963 when the company offered a 5 year or 50,000 mile powertrain warranty. It cost Chrysler very little more to offer this warranty, but apparently paid big returns in sales.

Even if these extended warranty companies were on the level, their expenses shouldn’t be very great in relation to what they take in. As you state, they pay out less than 50 cents on the dollar. Even if these warranty companies didn’t try to weasel out of legitimate claims, the companies would still make a big profit. Buying one of these warranties is gambling with the odds in favor of the company. If one wants to gamble, one should go to Las Vegas The return there is 95 cents on the dollar.

The extended warranty business encompasses much more than automobiles. An appliance store tried to sell me an extended warranty on a refrigerator. I’ve never had to have a repair on a refrigerator. The really wild deal I was offered on an extended warranty was for a vacuum cleaner. I had an upright vacuum cleaner that was wonderful for carpets, but had so little suction that the tools were useless. I also wanted a vacuum cleaner that I could use to clean the car. I happened to be going through a Sears store and the appliance department had one canister vacuum on sale “as is” for $19.95. The sales person told me that it was so cheap because they had lost all the tools. I bought it because I had the tools that came with my upright vacuum, so for me it was a good deal. A week later, Sears called me and offered me an extended warranty for my vacuum cleaner purchase. For only $20 a year, I could be covered for repairs for the next five years. I respectfully declined this offer.

I normally don’t buy extended warrantees for anything; cars, appliances, computers, electronics, etc. They are almost never a good deal. The only exception I can think of is the warrantee for my young daughter’s hearing aids, that include lose or damage coverage (little tiny devices that cost about $5000 and would be very easy for a kid to lose).

Avoiding paying for warrantees is also a good reason to avoid buying new cars. The manufacturer’s warrantees is certainly one of the things that contributes to the silly prices (and large initial depreciation) of new cars. The same logic applies, find a good deal and have enough cash available to fix anything that breaks.

My only advice on buying them where case it makes sense emotionally/economically to a person is get one backed my car maker not an independent warranty company.

Sears staff are well indoctrinated to sell extended warranties. Last year I had a heavy duty water heater installed with a 10 year warranty (“Sears Best”). I just had a call from their extended warranty sales person that “my warranty was up” and I coud buy an extended warranty. After expaining the 10 year deal, she said this would apply to the $100 installation charge!! Sears had installed the heater. It took me some time to explain that the heater installation was OK and did not need warranty.

Having kept track of repairs and warranties on various appliances and electronics, here are some actual results:

  1. Items analyzed and bought new: 11
  2. Repair costs for 11 items from the end of year 1 to year 5: $104
  3. Cost if the 4 year extended warranties were purchased: $1263

So the return on those Extended Warranties is even more dismal than with cars.

This is fun reading.

The extended warranty Insurance Policies are HUGH PROFIT insurance policies for the insurance companies. The large companies like State Farm, AllState and Liberty Mutual are very big players in this. They have setup MANY small companies to sell these policies directly or indirectly (through dealers) to consumers. The profit for these policy’s is more then 10 times greater then any other policy they sell…or have ever sold.

You think it’s tough to get coverage…My brother-in-law who’s a retired Chryco Exec…about 20 years ago when he was a Plant Manager for Chryco…his daughter bought a new Dodge…And bought the extended warranty…About 5 years later she needed some work done and according to her documentation it was clearly covered in the extended warranty she bought from CHRYCO…It took my brother-in-law 2 months of making phone calls and talking to about 2 dozen different people to get his OWN COMPANY to cover the exteneded warranty…What chance to you think we have.

I’ll bet these stories are the tip of the iceberg. Another headache I experience is with mail in rebates. I try to avoid buying anything that has one, but once in awhile it is the very best deal. Although I always read the instructions and make copies of everything before sending it in, several times I’ve gotten letters saying I missed somthing (although I’m sure I didn’t) or I don’t get contacted at all. Usually when I call the toll free number and fax the copies they’ll send me the check except for…

2 years ago we were supposed to get a $50 rebate for a printer (major US manufacturer). After receiving nothing I called the toll free number which went to a center in Young America, MN. They had me mail copies in. Again, no response. After 10 “nice” phone calls spread out over a year’s time and 4 re-faxes of the information and several promises that I would get the check “in a couple of weeks” I asked to speak to the supervisor. He flatly said “It’s been a year, that’s too much time, you’re not going to get a check.” Very fed up, I then contacted the local news consumer rights advocate and they ran a story on the evening news. We finally got our check (along with ink cartridges and apologies from the company’s corporate offices who said we should never have been denied, there will be an internal investigation…). I realize that these places want to make it difficult to get your check but sometimes they flat out won’t give even though you’ve followed each requirement to the letter. I know this isn’t car related but I think it ties into this general thread.

Joseph, you didn’t have the regulars on here in mind when you posted, did you.

I think most of the regulars already know.