Our lives are increasingly filled with high-tech gadgets and tools—from smartphones and laptops to smart televisions and tablets, to name a few. And nearly every time you plunk down money for one of these flashy items, there’s an opportunity to buy an extended warranty. For many of us, that’s when the internal dialogue begins: Should I purchase the warranty? Is it worth it? Is it a waste of money? Am I being foolish purchasing it? Worse yet, am I being foolish not purchasing it?
For those who love to dive down the rabbit hole of internet research, the answer to whether or not to purchase a tech warranty is almost always a resounding “no, don’t do it.”
An article from the Kellogg School of Management at Northwestern University titled “No, Extended Warranties are Usually Not Worth It,” (which includes research from the University of Pennsylvania) explores the many reasons why these policies are often better skipped.
Here’s the CliffsNotes version: Tech warranties often come with high prices that translate into serious profit margins for retailers—as high as the 50 to 60 percent range. But the reality is that many of these high-tech items we’re purchasing rarely break. And if the public were largely aware of this fact, they’d be far less likely to purchase the warranties being offered.
“People believe that a product is far more likely to break than it actually is,” states the Kellogg article. “If consumers are told the failure rate of the product they’re buying, they’re willing to pay much less for a warranty.”
Here’s at least one statistic to bear in mind with regard to failure rates, from a Consumer Reports study cited by the Kellogg article: Televisions failed about 5 to 8 percent of the time during a study that took place between 1998 and 2004. And based on that failure rate, it was determined that the profit margins for tech warranties can be as high as 62 to 73 percent.
The Kellogg article suggests policymakers should more aggressively regulate the extended warranty market, which includes tech warranties. Experts believe government intervention would have the effect of driving more competition, which would help bring prices down. In the best of worlds, this would mean that the customer wouldn’t be spending quite so much money on those warranties.
The experts at Kellogg are not the only critics of tech warranties. There are dozens of articles online on this topic. Everyone from CNet to NBC has labeled extended warranties for electronics a waste of money.
There are many options, and none are great
One of the most well-known tech warranties is AppleCare, but these days such policies are being offered by nearly everyone, everywhere—during check-out while shopping in brick and mortar stores like BestBuy and while shopping online, including when you purchase tech items on Amazon.
Tom Brant, senior analyst for PCMag reinforces the point made by Kellogg and others, that such offers are rarely worth it, particularly when it comes to laptop purchases.
“Most laptop makers offer one-year warranties on parts and labor. These standard plans are limited, so they won’t cover accidents that stem from spilling a drink on the keyboard or dropping the system on the sidewalk,” explains Brant. “But if you’re buying a laptop that costs less than $1,000, the added expense of an extended warranty or one that covers additional damage usually isn’t worth it relative to the overall price.”
If you decide you absolutely need an extended warranty, check your credit card agreement first, as many card issuers extend the warranties on purchases for one year after the original one expires, suggests Brant. In the event that your credit card issuer doesn’t cover you, some laptop makers will happily sell you extended warranties.
“Apple, Dell, HP, and Lenovo all offer wide ranges of extended warranties and coverage for accidental damage. Expect to spend $100 to $300 for these options,” says Brant. But here’s a good rule of thumb, courtesy of Brant, (at least when it comes to laptop warranties): If the warranty costs more than 15 percent of the purchase price, you should consider spending that money on a backup hard drive or online backup service instead.
In other words, your money is better spent simply buying a less expensive hard drive or online backup than dropping quite so much cash on a warranty or optional insurance that you may never, ever use. Among all electronics, an extended warranty generally costs 24 percent of the product’s price on average, according to the University of Pennsylvania study. And customers bought warranties between 20 and 40 percent of the time.
When might a tech warranty be worth it?
In most cases, extended warranties are only worth buying if your new device, (whether it’s a laptop or television, phone, or anything else), is more expensive than what your credit or debit card insurance would cover for the item, says Brant. So once again, for those in the back, call your credit card first to find out what their policy entails before buying Apple Care, or any other type of tech warranty.
“Optional accident protection for the latest $150 Amazon Fire HD 10 tablet, costs $20 for one year. It covers up to three damage claims during that period but doesn’t cover theft,” continues Brant. “Meanwhile, if you buy the tablet with a MasterCard, you’ll automatically be eligible for both theft and damage coverage for free, though the coverage periods and amounts vary depending on which bank issues your card.”
On the other hand, if you’re buying an expensive Apple laptop and your debit or credit card only covers devices up to, say, $1,000, Apple Care could make sense, Brant continues.
But be prepared, at up to $299 for a damage claim— in addition to the cost of the coverage—it’s expensive, says Brant. Still, if you’re worried you might drop that shiny, new $2,000 MacBook, a tech warranty may be your only option for peace of mind.
A very expensive option. But an option, nevertheless.