Are Extended Warranties Worth The Money? Let the Bathtub Curve Explain
Know Your Rights
Exploding the Extended Warranty Myth
It was only the other day when I purchased a new printer that I was again amazed when the sale assistant at the register began her well rehearsed spiel offering me an extended warranty on a $30 purchase. The details of the scam, oops I mean deal, which I listened to with a pained grimace, were for the privilege of paying almost 25% more of my purchase price ($7) I could extend the warranty on my new printer from one year to two.
This was for an item that if I wished to change the two ink cartridges when they run out will cost me over $60, and if I use non standard cartridges it will give both the retailer and manufacturer an excuse to attempt to invalidate the warranty anyway. As I explained that the printer will be in my recycling bin well before two years I walked out the door wondering how many people fall for her well rehearsed patter?
Well before you too are the next victim of the great extended warranty scam, here are a few facts for your perusal.
Know the System. Then Use It.
Get the most out of your new cars warranty and if you have signed up for an extended warranty, ensure you get the maximum return for your investment.
The Bathtub Curve
A graph can save a thousand words, but just so the one above is completely clear, what it shows is a picture that the companies that sell you extended warranties don't want the ordinary consumer to see.
It has been shown by several studies that the average consumer product either fails in the period it is covered by its manufacturers warranty (or statutory warranty - e.g. very soon after you bought it) or it fails after a reasonable life of use where the average consumer would be looking to replace the item anyway, based on advancements in technology or performance.
The graph above dramatically demonstrates this trend and also highlights the period that the sellers of extended warranties love to insure you for, the period of least failure. Taking my printer as an example, they wanted me to pay a 25% (ok 23.333333333%) premium to insure my printer and its replacement (if its failure met all the conditions of the agreement, none of which were described by the smiling cashier) in the unlikely event it failed in the period where this happening was most unlikely.
As the consumer and schmuck who would be parting with his hard earned dollars for this privilege, those were odds I didn't like.
Look carefully at the unimaginatively named 'Bathtub Curve' next time you consider buying any extended warranty, and then keep your hard earned money firmly in your pockets.
What are your thoughts on Extended Warranties?
Your Rights as a Consumer
Every country, nee, just about every state has a different slant on consumer law and how it is interpreted, so every consumer should make themselves aware of just what rights they have under local consumer laws. For my example here I will use my recent printer purchase and Australian Consumer Laws, just to highlight the farce that is an extended warranty.
Goods Purchased - Canon ip2700 Printer
Initial Warranty offered with purchase 1 year
Extended Warranty offered 2 year (1 extra year)
Price of Extended Warranty $7
Under Australian law I should expect that my new purchase will last a reasonable amount of time and do everything I was promised by the sales assistant and as described in any literature given to me, as well as anything stated or implied by a demonstration model in the store or any claims made on the packaging. If it fails any of these criteria I can get my money back.
Now for the extended warranty. I will be using this printer to print around 200 pages a year, Canon state that the ip printer series have a printhead life between 5200 and 10,400 pages depending on the model, meaning that I can reasonable expect a lot more than 2 years of use before my printer fails. It also means that Canon expect my printer to last a lot longer than they or the extended warranty company cover it for.
It is only my opinion, but I would think that if my printer fails after 12 months and a week and I have only printed 200 pages I would be well within my rights to get Canon to repair it. This failure would not be deemed reasonable based on their printhead life expectancies.
An example of 'reasonable' given by the Victorian State Government Consumer Protection Department is a $6000 television with a 1 year warranty. The VSGCP states quite clearly that if the television failed after 2 years, it would be reasonable for the purchaser to expect the television to either be repaired or replaced, even though the television was out of warranty. Yet this is the exact scenario where most electrical stores will try to sell you an extended warranty.
I don't think if my printer fails after 2 years I will have much chance to get it replaced as it seems cost is a big factor in product life expectancy, but realistically who expects a $30 purchase to last forever anyway?
Links to Your Consumer Rights Organisation. - Know your Rights and if you don't, Find them Here.
Become an Educated Consumer
Know all your rights. A well researched consumer is a happy consumer. Get everything you are entitled to and sometimes a little more!
Be aware that many retailers make more from selling you the extended warranty than they do from selling you the actual product.
Would You Buy an Extended Warranty from this Man?
A Final Word
Even if you are thinking of buying an extended warranty for a high cost purchase such as a motor vehicle, always know your rights and what is actually covered by the extended warranty. I will leave the last word on extended car warranties to the New South Wales Department of Fair Trade.
Some common extended warranty conditions and requirements include:
- A regular service during the whole warranty period at a specified place (or dealer) at your own cost eg. every 5,000km/6 months or 10,000km/12 months depending on the distance the vehicle has travelled
- An excess payment up to $500 per claim depending on the part that fails
- A service coupon must be stamped and posted within 7 days
- A maximum payout limit which may not cover the necessary repairs and you may need to pay the gap yourself.
Make sure you fully read and understand the extended warranty booklet and can comply with its terms and conditions for the whole warranty period before buying the extended warranty. If you don't meet any of the extended warranty conditions you may not be able to claim on it or your policy may be cancelled. Be aware of its limitations.
After reading the fairly conservative language of the NSW Department of Fair Trading, would you consider this to be a good deal? I personally wouldn't!
My final word on extended warranties? Caveat Emptor or for those who don't speak Latin: "Let the buyer beware".