You are in the store, all excited thinking that you will see the hockey gold medal final on your brand new (not yet purchased) 58” plasma TV (since 42” is too small these days 😉 ). As you are about to tell the salesman that you will take it, he looks at you and starts his sales pitch.
The thing is that he doesn’t want/need/care to sell you a TV (he knows that you have made up your mind and that you will leave the store with a giant screen anyways!). He wants to sell his extended warranty. His whole pitch is based solely on how great the extended warranty is while your life would suck so much if you don’t buy it.
For every $100, the store gets $50 to $60 in profit!
According to Eric Arnum, chief editor of Warranty Week, here’s how $100 in extended warranty is split:
$50 in profit
$30 in administration fees (gotta love paperwork!)
$20 only is actually used towards actual claims.
I’m not surprised that $7.5MM were made from extended warranty sales in the USA in 2004 (according to Warranty Week).
When you think that an extended warranty could cost around $500 for a big TV, you can figure that the store makes as much money out of the extended warranty than from the TV itself!
According to Consumer Reports, the chance of having a defective plasma screen within the first 4 years is only 3%! It jumps to 12% when you are talking about a refrigerator… Even then, the cost of an extended warranty can go as high as one third of the original cost.
So far, in my own experience, everything I bought new (tv, computers, furniture) has always lasted me more than 3 years (which is usually the longest any extended warranty period goes for). My first tv is still up and running (since 1998) and my “new” plasma TV is already 5 years old! I’ve had my washer and dryer for the past 8 years too… nothing to worry about so far!
Fear is one of the biggest motivators in life and any good salesman knows it. They will ask you what you will do if your TV breaks in 6 months. They will amplify the potential problems you will have when you will contact the manufacturer directly. He won’t forget to mention that you will be on your own, that you will have to ship your goods by Purolator and that it will take forever to repair.
By playing the fear card, he will take away the rationale behind your real chances of buying the worst item in the store. Unfortunately, it works really good in most cases…
So if you still think that you need an extended warranty (because we all think how disappointing it would be to drop $2,000 in 13 months to buy another TV!), you have a few options to explore.
When it comes to protecting major purchases such as a plasma TV, computer or refrigerator, you basically have 2 options:
– Request to read the extended warranty contract and make sure that most of the stuff is covered.
– Pay with a credit card with an warranty extension (usually, most good credit cards double your warranty up to 2 years additional).
I actually use the credit card option. My Platinum MasterCard (from National Bank) offers me a great protection plan (double the warranty up to 2 additional years). Therefore, I don’t have to mind much when I buy a plasma TV (this jump the warranty to 3 years). Everything is covered according to the manufacturer’s basic warranty (which includes most of the “normal” stuff that could break).
While I have never had to use this feature (I guess it’s the living proof that we don’t really need an extended warranty), the process seems quite easy: you need your original bill, your credit card statement, a formal option on the state of your “broken” good and a insurance declaration.
I am actually in the process of finding out if I can use it to get my laptop screen working perfectly again (I have pixel bars showing here and there). The problem is that I didn’t keep any of my receipts, nor my credit card bills. My latest research showed that I didn’t purchase it with my main credit card (which I think I didn’t have 2 years ago…). So I am still looking to see if my other credit card has the same extended warranty feature… more news later on!
|How I Suck at Not Paying Debts||Hitting 6 Figures Income at 28|
|How I Get a Huge Income Raise Each Year||Making $125K Online in 12 months|
|How I Buy Blogs||Most Debated Articles: The Primerica Saga|
|How I Have Survived My MBA||What is So Wrong With Making Money?|
|How I run multiples blogs and makes money without burning out|