[SCAM] Gadget Insurance and Extended Warranties

Category: Finance , Gadgets

I've never been a fan of insurance, protection plans, or extended warranties for electronic devices or even appliances. In fact, I make no bones about my disdain for these “protection rackets,” which are all heavily rigged in the seller’s favor. Here's what you need to know about mobile device insurance, extended warranties, and my thoughts on what’s wrong with them...

Are Extended Warranties and Device Insurance a Waste of Money?

First, let me explain why device insurance is a scam. Sellers of device insurance sell policies that do not provide any protection until the manufacturer’s warranty expires. Every device comes with at least a one-year warranty from the manufacturer. So the first 12 payments you make to a device insurer give you absolutely nothing!

Consumer Reports tells us that 57% of insurance-covered accidents that happen to electronic devices happen within the first year of ownership. In my experience, the percentage is even higher for big ticket items and appliances. So there is a better than even chance that your high-priced device insurance won’t be there when you need it.

Even when you are covered, “some restrictions apply.” AT&T’s so-called “comprehensive” Mobile Insurance plans have deductibles and maximum numbers of claims per year. These variables are calculated by beancounters who know, to the penny, how many claims to expect in a year and what the average cost of a claim is. The restrictions are cunningly set to ensure that you pay more than you can expect to lose. The difference is AT&T’s profit on device insurance; if it’s not enough, AT&T just raises the price as it did recently, from $6.99 for a single device, to $7.99 or $10.99 per month.

The extended warranty and device insurance scam

Most extended warranties provide that you must accept a refurbished replacement device if a replacement is granted. If after just 12 months, your iPhone was stolen, your (refurbished) replacement from Verizon would cost $320 in warranty plus deductible costs. But these phones can be found all over eBay for under well under $300. And you'll continue to pay monthly for that warranty, at least until your two-year contract expires.

Speaking of refurbished replacements, here’s a new scam that at least one insurer (Assurant) failed to get away with: counterfeit refurbished replacements! The long sordid story is here. The short story is: Melvin Williams called Assurant, T-mobile’s device insurer, when his daughter dropped her iPhone. Assurant charged him a $250 deductible to replace the damaged iPhone with a refurbished one.

Six months later, the replacement phone first stopped charging, then died completely. “That’s not one of our phones,” the Apple Store geniuses told Williams; a sharp eye for iPhones could spot the differences in the chassis, and when the fake phone was opened all the components were cheap imitations. Assurant, of course, claims this was an isolated aberration in its supply chain. But the company also admits it does not inspect the refurbished devices it buys from third-party refurbishers, so how would it know?

Complications and Considerations

Verizon is the best at making a simple subject complicated. You have to choose whether you want the Total Mobile Protection, Total Equipment Coverage, or the Asurion Wireless Phone Protection plan. For basic phones and tablets, you pay between $5 and $11 per month per covered device. There's a $49-$199 non-refundable deductible per approved claim for devices lost, stolen, or damaged. You get two replacements in a 12-month period with an equipment maximum of $400 or $1500 per claim, depending on device. That's the large print -- and it gets more complicated from there.

Other big-ticket consumer electronics merchants invented the extended-warranty scam years ago. You cannot escape Best Buy with a simple phone charger without answering the question, “Do you want to add the extended warranty” thing that cost three bucks, delivered, on eBay. Of course, Best Buy charges $19.95 plus sales tax. And of course, as the price tag goes up, so does the cost of these "Protection Plans". As an example, plan on spending an extra $150 for two years of coverage on a big-screen HDTV. And after 24 months, they'll hit you up again to extend your coverage.

You can replace a cracked smartphone screen with a $30 repair kit, a hair dryer and a sharp blade. If you're just a little adventurous, you can fix almost anything with the help of YouTube. I've found parts and instructions online to fix my own washer, dryer, and lawn mower. Most components in your computer can be easily replaced without a soldering iron or a degree in electronics. If you know how to use a screwdriver and a socket wrench, and you're willing to do a bit of online research, chances are you can fix a lot of things on your own.

Some credit card companies offer extra warranty protection at no cost. American Express will automatically add one year to the original manufacturer’s warranty on any product that you purchase with it. Check with your card issuer to see if they provide a similar benefit.

The Bottom Line is YOUR Bottom Line

My advice: Don’t ever buy add-on insurance for any appliance or electronic device. If you're not a do-it-yourselfer, talk to your insurance agent about adding a rider to homeowner’s or renter’s insurance that covers all such devices. One reader tells me he got such a rider for a mere $27 per year with a $50 deductible per claim!

If you feel that you MUST purchase an extended warranty or protection plan, don't buy it from the service provider or store where the item is sold. A third-party like SquareTrade will provide similar coverage damage for a fraction of the price.

So am I wrong to call mobile gadget insurance, extended warranties and protection plans a scam? I don't think so. These things prey on your fear of the improbable. The likelihood that you'll come out ahead in the long run is very small. Factor in those confusing terms, exceptions, and deductibles, and you'll almost always end up paying more in the long run.

At the very least, device insurance is waste of money. Don’t buy it. Your thoughts on this topic are welcome. Post your comment or question below...

 
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Most recent comments on "[SCAM] Gadget Insurance and Extended Warranties"

(See all 27 comments for this article.)

Posted by:

RandiO
23 Mar 2017

@GuitarRebel,
Most dogs would pay extra to have their leash break on the first day of purchase, so that they could run around free! ;)


Posted by:

Marcia
23 Mar 2017

I bought a brand new Samsung Note 5($700) and a 2 year warranty plan ($109) for it through Square Trade. After dropping my phone in the toilet...the bag of rice didn't work, I contacted Square Trade. There is a $99 deductible and it was replaced with a refurbished phone. BUT because the replacement one is certified I get to use the year that is left on my square trade plan with no additional cost. I had my replacement in two days and its working as advertised. Square Trade was easy to deal with and user friendly. NOTE: In the first year Square trade covers items that the mfg. warranty doesn't cover. I am happy with the customer service I received from Square Trade


Posted by:

Dave S
23 Mar 2017

My brother has bought Square Trade warranties for his iPads and it has come in handy twice. So definitely got his money back on it.

For appliances...so many (most) have so many electronics that can often and easily get fried with a power surge from a thunderstorm, (and I've had experience with this). The warranties have come in handy several times and saved me **quite a bit** of money overall in repair costs.


Posted by:

Cameron
23 Mar 2017

I'll never forget years ago Consumer Reports put it this way: If you add up all the extended warranties you turn down over the years, they add up to much more than the purchase price of the one or two items that may have been covered by them, even the high ticket ones.


Posted by:

Renaud Olgiati
23 Mar 2017

Simple Basic Principle For Insurance:

Only buy insurance cover against the losses you could not afford to pay yourself.


Posted by:

Heather
23 Mar 2017

Well I have had some warranty protection for mobile phones, back in the days pre-smartphones. I dropped my circa 2008 Samsung display phone and no display. This was a type of flip phone with a full qwerty keyboard that you used when you flipped the phone horizontally, permitting one to text quickly - or you could keep it closed and see a smaller display and text using the numeric keyboard. The extended warranty through Verizon replaced it out of warranty with the same equipment. I think my cost per month then was less than $3.

Now the cost to "cover" a smartphone is nearly 4x that, per month. And I'm in a different work situation and the jeopardy to the phone is not nearly what it was. So I don't buy it.

I also purchased a one-time fee extended warranty on an LG LCD television, back when they'd first become widely available -- a 37" screen TV was nearly $800. And we know what they cost now...the device needed some repair and thankfully even though the major chain that I bought it from had gone out of business, since the warranty was from a third party, it was honored, and after 2 visits and a part that cost more than the warranty did, it was fixed and STILL works well.

For a while back in the 1990s, my credit card company offered an annual "warranty advantage" program giving us about 20% of the cost of repairs of appliances in the house. I think it was something like $125. I had a very old (circa 1978) fridge, a circa 1980 washer dryer, and some other appliances -- this service more than paid for itself -- actually probably doubled my money. All I had to do was to call them and tell them I had a problem appliance and since I lived in a rural area, they permitted me to select my own repair service. So I got a new icemaker and compressor, new washing machine motor (which was the result of a bad repair job earlier -- the maytag guy wasn't sleeping at my house), and I cannot remember what else. I believe that some credit card companies still have such a program -- I know Amex did for a while if you bought the appliance using the Amex card.


Posted by:

Daniel Wiener
23 Mar 2017

I certainly agree that extended warranties from vendors are a scam. (I wish I could convince my sister that the warranties she has from Sprint on all her family's phones are a waste of money.) However, under certain circumstances I've been willing to buy extended protection plans from Square Trade. Similar to Ron Miller, we bought a one-time $99.99 Square Trade policy with no deductible through Costco when my daughter got a laptop computer in 2014. Recently its battery crapped out, about two months before the end of the 3-year policy. Square Trade authorized its repair by any legitimate repair shop, although they recommended a nearby one which we used. It was fixed, we paid the repair shop and emailed the invoice to Square Trade, and they immediately sent us a reimbursement check. The whole process was totally painless and far exceeded my expectations. So Square Trade gets a big plus check mark from me.

My daughter is also very hard on her cell phones, so when she had to replace a damaged Galaxy S6 with a new Galaxy S7 we decided to buy a $149 3-year Square Trade protection plan for it. Interestingly, when trying to decide how many years to buy, I was told that a 2-year plan would be $119. Clearly they are discounting the longer plans to incentivize people to buy them, which is common practice. But I was also told that I could cancel at any time and get a pro-rata refund. So after 2 years I could cancel if I wanted and get $49 (i.e., one-third) back, which would effectively make the 2 years only cost $100 instead of $119. When I pointed this out to the Square Deal sales rep I was talking to, his reaction was "Yes!! I have such a hard time conveying that to customers, and it's such a pleasure to have you figure that out for yourself!".


Posted by:

Joe Gill
23 Mar 2017

For the most part, I agree. For most items, NO extended warranty. My exceptions are:
A) If you are purchasing something which is 'bleeding edge' technology, you are a guinea pig. Guinea pigs need insurance!
B) If you yourself are a 'klutz', and drop / smash things, or are hard on devices (as in toss laptop on the couch and it falls to the floor), I recommend the insurance.
C) If your argument is..My homeowners (or renters) will cover it, BEWARE. One small claim and you could be paying FAR MORE in insurance.


Posted by:

Robert A.
23 Mar 2017

One of the most ridiculous attempts to sell an extended warranty is at Best Buy, where the cashier asks, at check-out, if you wish to buy, for about $5.00, a "protection plan" for a $5.00 or $10.00 Blu-ray or DVD disc. Come on! Seriously?

Either the disc plays right out of the case, or it doesn't. And if it doesn't, you return it and get a replacement within the normal 15 or 30 day exchange period. And if it does play, it should be good for at least 100 plays, or longer, than most persons will likely play the disc in their lifetime. You're likely to want to upgrade from a DVD to a Blu-ray or 4K UHD Blu-ray disc, even if the original disc were to somehow fail.

For most small electronic items such as thumb drives, headphones, keyboards and cheap disc players, the retailer is likely counting on the buyer losing the cash register sales receipt that has the proof of purchase of the extended warranty/service plan, or forgetting that they actually bought extra protection, after several months, if not weeks, and then will end up buying a new unit, out-of-pocket, to replace the defective product.


Posted by:

Robert A.
23 Mar 2017

With the ever changing landscape of technology, products and features that are state-of-the-art today will drop down to mid or even lower tier desirability, very quickly. Ten megapixel digital cameras, which were considered top-of-the-line five to ten years ago are now considered opening price point units, and the most current units are likely boasting 25 or more megapixels. A typical 55 inch top line 1080p HDTV five years ago may have sold for $1200 to $1500, but a comparable unit, size and features wise, if one can be found anymore, will likely go for about $250 to maybe $400, these days.

Most higher quality electronics are inherently reliable, right out of the box, and, if they do fail, it will likely be dead-on-arrival, upon unboxing or die, generally within the first 90 days of constant use. Should that happen, it may be easier to just return the defective unit within the retailer's refund/exchange period.

Just be sure to save all the original packaging material - box, Styrofoam packing, cables, accessories and any included paperwork that came inside the box as shipped from the factory, or the retailer may charge a 15-25% "restocking fee" to cover such missing items.

A typical manufacturer's warranty is generally for 12 months for parts, and sometimes for repair labor, although repair labor coverage may be limited for only 90 days from the sales date. A very few high dollar premium brands may offer two, three or even five years of factory coverage, but that is usually very rare, and, realistically, reflected in the higher purchase price.

Costco offers an additional year of warranty coverage on some of the highest end TVs and electronics it sells, effectively doubling the manufacturer's warranty to two years. Costco also offers a two year Square Trade extended warranty, at extra cost, for about $100 for a typical 55-60 inch TV selling for over $1000.

Breakage is usually not a factor in non-portable electronic devices, such as TVs, or major household appliances. But, in the case of portable devices, such as laptop computers, tablets and smartphones, there is that possibility, and an extended warranty may be desirable, depending on terms and cost.

The buyer should always read all the fine print on the extended warranty policy sheet and try to understand what is and what is not covered, as well as the limitations on repair and/or replacement coverage for failed or damaged unit. An online search of a particular manufacturer, retailer or third party warranty provider's warranty claims issues should provide many answers to potential buyers as to how those companies deal with claims.

It may be helpful to know if an extended warranty can either be purchased within a certain time frame after the original item purchase, or be refunded in say, five or 10 days, in the case of buyer's remorse. Some states may have consumer laws that allow such a contract.


Posted by:

david sparkman
23 Mar 2017

Warranties are sometimes useful in the buying decision for cars. The reason is, as you mentioned, that they do know their actual costs. So if two cars are about equal in cost/value, the one with the less expensive insurance price is probably better made and will have fewer and less expensive repairs over the warranty period. So the manufacturer, knowing this, prices his warranty lower.
On phone warranties, the deductible that you pay is often the wholesale price of the phone. They lose nothing by giving you a new phone at cost.And they keep your monthly payments as their profit.It is a total scam.


Posted by:

NB
23 Mar 2017

Bad news: AT&T "forgot" to mention the deductible on their protection insurance when I bought my most recent iPhone.
Good news: when I found out, I was able to cancel the plan immediately - not locked in.


Posted by:

STS51
24 Mar 2017

Costco has great warranties. They include a 2 year warranty with most electronics and extend that to 4 years if you use the Costco Visa card.


Posted by:

Wild Bill
24 Mar 2017

Back in the 50's and 60's electrical warranties were 90 days. Then manufacturers started offering longer and longer warranties to compete for business. The 90-day warranty came from studies of reliability from the 40's that determined that catastrophic failures mostly occurred in the first 90 days of a device, decreasing exponentially with use. With rare exceptions, most devices that last 90 days will last far longer, barring accidental damage, which is typically not covered. And most extended warranties exclude wear and tear.


Posted by:

Dave
24 Mar 2017

I don't know about this.
My wife just had her iPhone die and we got a replacement for $100.
Could be refurbished but looks and acts like new.
I thought my mobile insurance had expired but it is still on the bill at $3.00 per month and am glad I had it.


Posted by:

Karena
24 Mar 2017

Dave S: A whole-house surge protector will be cheaper than individual extended warranties on everything you own.


Posted by:

Freyja
25 Mar 2017

I don't usually purchase extended warranties but for some reason did when I purchased my 32" Insignia TV for an additional year. Just after the end of the original warranty, I had some problems with it and the repairs were 100% covered. The cost was the same as the cost of the warranty. About 5 days after the purchase warranty ended, the TV stopped working completely. I called for service thinking it was still in effect. Well, due to some sort of rider or something, the GeekSquad said it would still cover repairs, came checked out the TV, told me they had to order parts. Actually they replaced everything except the screen itself. The cost of the repair was completely covered. That was about 4 or 5 years ago. "Knock wood," it is still working just fine. I think I got my money's worth, but I still don't buy extended warranties. I think that my T V experience was a fluke.


Posted by:

JIM HICKS
26 Mar 2017

WE BOUGHT 2 ACER 'ASPIRE' LAP TOPS FROM WALLMART [ CANADA ] AND PAID FOR WARRANTY. HARD DRIVES FAILED ON BOTH. PHONE CALL TO THIRD PARTY INSURER AND THEY AUTHORIZED OUR LOCAL REPAIR SHOPS TO REPLACE BOTH WITH LARGER DRIVES AT NO COST TO US. BOB, THANKS FOR YOUR GREAT OPINIONS.


Posted by:

jphuf
28 Mar 2017

A few years ago, purchased the Epson WF-7620 from OfficeMax. Had a 1-year plus got an extended 2-year for $35. Near end of 3-yr, I called and said the scanning was running slow, expected some advice. Sent me a new one. Now have three, all work.
As I figured it out, it was my WIFI, now use a cable connection. Offered them a return, told to keep them.
All I did was ask a question & followed their instructions. Tried to be honest with them.
I do not have a complaint with the extended warranty, as it turned out to be a good deal.
$35 for 3-years to cover a $200 printer, I feel is a good deal, most printers (used frequently) don't last 2-years, in most cases. I do a lot of scanning & printing.


Posted by:

Ms. In
13 May 2017

I always buy OfficeDepot extended warranties. I have bought 3 printers from them, and they send you what you paid for them so you can buy what you want. I don't remember what the warranty cost, but I don't believe it was much. But you MUST KEEP YOUR RECEIPT or you will have a hard time getting things done. All the comments are good advice. Most extended warranties aren't worth it, but when I pay $200+ for an item, I do the math first.


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