by Karen Telleen-Lawton, Noozhawk Columnist (read the original in Noozhawk by clicking here)
Erma Bombeck was younger than I am now when she quipped that you shouldn’t buy green bananas when you reach a certain age, because you may die before they ripen.
I don’t plan to avoid them for at least a couple of decades. However, I have started considering my age when deciding whether to buy extended warranties.
Asset purchases used to include comprehensive warranties covering a reasonable product age. In the early 2000s, I brought in for service my Adler sewing machine, my folks’ junior high graduation gift to me. The overhaul cost me $3.18 after applying the 40-year warranty.
More typical now is “One-year parts and service,” which you’re encouraged to upgrade with a pricey limited warranty. Whether to purchase the contract comes down to a simple proposition: What does it cost and what do you get in return?
The insurance companies’ profits depend on analyzing product performance statistics to predict how and how many will break down. You can improve your chances by researching repair records and purchasing a reliable brand. In the end, however, you purchase one item that will or will not break down prematurely.
A warranty worth considering is one with few or no exclusions. Some may be included in a house sale.
We bought a home where the seller included a home warranty that covered all the appliances, none of which were new. In that first year, several items including the water heater gave out, and all were covered without incident. The company was Old Republic, which is still in business, no thanks to us that year.
We also purchased an extended warranty on our most recent new car purchase. The policy even covers routine maintenance and roadside service.
As seniors, we are gratefully delegating auto maintenance, and trust that whatever comes up will be covered. Even if the policy costs more than the repairs would have, I think we’ll be okay with it.
In fact, 55% of people who buy extended car warranties never use the coverage, according to a 2013 Consumer Reports survey. CR notes that those who buy contracts end up spending hundreds more for the coverage than they save in repair costs, on average.
“Extended car warranties are not a good value for consumers,” reports Chuck Bell, programs director for Consumer Reports’ advocacy division.
In addition to their high cost, extended warranty contracts are unlikely to be comprehensive. Your particular repair may not be covered. The insurer may drop your coverage when your asset is aging.
Or if you don’t buy it directly from a reputable manufacturer or the dealer, the coverage may be a scam.
In place of purchasing warranties, try including the warranty prices in your budget without purchasing the contract.
Let’s say, over a 10-year period, you purchase a dryer, a car, and a microwave. They each offer warranties whose total cost is $300 per month. At the end of a decade, you have established a fund of $36,000 minus whatever repairs were needed.
At worst, you’ve almost certainly covered repairs without panicking about the cost. At best, your appliances still function and your fund will be a treasure chest when you need to replace them.
The microwave I just replaced last month had a manufacturer’s stamp of 1995! You can bet I replaced it with the closest model I could. That’s the best insurance.
Erma Bombeck died at the youthful age of 69. I would venture a guess that there were neither green bananas nor extended warranties in her house.
Should you buy an extended warranty?
Always: If a no-exclusions contract is offered, you can afford to buy it, and your desire for low-stress maintenance is higher than your desire to save money.
Never: If you are willing to set aside a “maintenance budget” that you can call upon when needed. If you might move (or die!) during the term of the contract and it’s not transferable.
Karen Telleen-Lawton, Noozhawk Columnist
Karen Telleen-Lawton is an eco-writer, sharing information and insights about economics and ecology, finances and the environment. Having recently retired from financial planning and advising, she spends more time exploring the outdoors — and reading and writing about it. The opinions expressed are her own.More by Karen Telleen-Lawton, Noozhawk Columnist