Read any financial magazine and they’ll generally tell you not to spend your money on extended warranties. Their argument is almost always that you probably won’t encounter a problem large enough to cover the cost. They have their old desktop calculator out, they are hitting the buttons, and what they are saying makes perfect mathematical sense.
But, is it just possible that there is more to consider than just math? What about stress? How is that measured? How much money does that cost?
When I bought my current house, I had to buy a refrigerator, washer, and dryer. I also had a narrow window of time when I needed them delivered, between closing and my move-in date. Two business days (and a weekend, which doesn’t count because none of these places work then). I also needed to make sure the gas, electricity, water, phone, the internet, and television were connected in those same two days.
I went to my local h.h. gregg appliance store, which I had never been to before, but they were the only place that carried the latest version of the LG refrigerator I had decided on. Despite their terrible name, I was able to buy and schedule delivery of all three appliances that I needed during the first of the two possible days before move-in. All that went well.
While I was buying the appliances, they (of course) offered me extended warranties on everything, and they were not cheap. I was in a hurry, I knew I wouldn’t have a ton of free cash after buying the house, and I agreed.
Afterward, I second-guessed that decision, but I was busy with the move and let it go.
There are two things a good extended warranty will provide, and only one of them can be added upon a calculator. Sure, overall, odds are you won’t recover your money. If that wasn’t true, the insurance company wouldn’t make any money, and they wouldn’t sell you a policy. So, from an individual standpoint, when probabilities are factored in, no insurance of any kind ever makes sense. But people buy it anyway, even when it isn’t required (like from your mortgage company, or from the state for collision insurance). Why? Are they just stupid? Do they not know this basic concept? No. They buy it because it makes no difference what the majority experiences if it is your problem to deal with.
My refrigerator had a defect. It was a factory defect, but it was still my problem to deal with.
Instead of asking around to find a service center, having them come to my house and attempt to bluff me (good luck with that) while insisting that all sorts of things should be replaced? Not very high on my list of things to do.
The part that can’t be measured with the calculator is the hassle of it all. That was the part I was dreading recently when my refrigerator started throwing an error code.
Luckily for me, the extended warranty folks were quick and easy to deal with. I didn’t even need to know who to call. They handled all that for me.
The repair place contacted me shortly after that, set up a time, and everything was essentially handled. Yes, I still had to be there when they fixed it, but they called and asked when they could come first, so even that was as painless as possible.
They ordered a part, put it in, and that was the end of it.
Did I come out ahead? Who knows. Heck, who cares? I didn’t have to do anything other than making one phone call and be there during the actual repair.
So, next time you consider whether to pay for one of these, and you remember the folks with the big, desktop calculators telling you it makes no sense, keep something else in mind. If something bad does happen, it isn’t your problem.
And that is worth something!