Last year my wife and I bought a new living room furniture set, and we finally succumbed to temptation and purchased a new television.  We were pleased with ourselves, thinking that we got a terrific deal on the entire set.  As we sat down to finalize the pricing and payment, there came the inevitable extended warranty pitch.

Luckily I was prepared, and after half-heartedly listening to the sales pitch I kindly rejected their offer for me to buy a $300 extended warranty for my brand new $800 television.  But for anyone who has ever been in this situation before, it didn’t end there.  They actually sent the Store Manager over to try more high pressure tactics to get me to buy the extended warranty on my television.

The real purpose of an extended warranty is to add to the store’s profits at your expense.  The extended warranty will pay the cost of repairing the item you purchased after the manufacturer’s warranty expires.  It is a product created and sold by the retailer, not the manufacturer.

Why You Shouldn’t Buy An Extended Warranty:

  1. If you finance the amount of the extended warranty, you will be paying interest on the cost of an agreement that won’t be in effect for one to three years.
  2. You pay for the warranty itself in advance even though it won’t be in effect for one to three years.
  3. By the time the warranty becomes effective you may have lost, sold, or replaced the item on which you bought the warranty.
  4. The warranty does not typically cover normal wear and tear, rough handling, or in the case of some electronics – actually dropping the equipment – which in reality are the major causes of defects.
  5. The cost of the warranty is astronomical compared to the amount of money the retailer actually pays for the real repairs.  Some experts suggest that less than 20 percent of all extended warranty monies collected by the retailer are paid out in repairs.  The rest is profit.
  6. Sales people are normally paid a huge commission for intimidating you into saying yes to extended warranties.

Many people fall for the extended warranty pitch because of the high pressure nature of the sale.  They have a feeling of satisfaction and relief after making their decision to buy an expensive item, and they are just about to close the deal when the sales associate mentions the extended warranty.

Some people just nod and agree to add it onto the bill because they just want the process to be over.  And most people will buy anything that seems to contribute to peace of mind or a sense of security, with no idea of how to calculate value.  I’ve actually heard of extended warranties being sold on batteries!

Back to my experience, last week I received a phone call from the same retailer advising me that my manufacturer’s warranty was set to expire in a few weeks and they wanted to let me know that they could still offer to take my $300 to extend the warranty another 2 years.

I’m no television expert, but the moment I set it down on the TV stand and plugged it in, it’s staying put and is not likely to break down on me.

Again, I kindly told the retailer that I wasn’t interested in their generous offer.  What are your thoughts on extended warranties?

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