[ALERT] Gadget Insurance and Extended Warranties

Category: Finance , Gadgets

I have never been a fan of insurance or extended warranties (both referred to as simply “insurance” henceforth) 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 are the latest “innovations” in device insurance, 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. 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, to $7.99 per month from $6.99 for a single device

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. Here is the simple summary of its simplest insurance plan: For basic phones and tablets, you pay $7/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 "[ALERT] Gadget Insurance and Extended Warranties"

(See all 29 comments for this article.)

Posted by:

11 May 2016

The ONLY time I did was with our first big scren HDTV which at the time were still in its infancy.
It was not necessary but they came and cleaned it yearly for the 4yrs of coverage.
Great advice for the unexpecting consumer!

Posted by:

11 May 2016

I purchased a 5 year insurance plan through Square Trade for about $60, on new Samsung fridge.

The refrigerator worked fine for about 4 years then starter having a water buildup at the bottom of the fresh food section.

After multiple attempts to fix it I was given the choice of another repair try or refund of the purchase price (about $950 dollars). At this point I opted for the refund. Square Trade gave me no hassles and promptly sent out a check for the full refund amount.

The only complaint I have is with the repair company chosen by Square Trade. The fix should have been taken care of without having to make repeated service calls.

Posted by:

11 May 2016

I agree that the extended warranties for devices that need repair or replacement due to a defect is a big waste. The main reason I got it is for replacement coverage in case I lose my phone, which is probably more likely than it breaking down. But you are saying I can get a rider on my homeowners insurance? I will check that out?

Posted by:

11 May 2016

If you have homeowners insurance, call your agent to see if you can add a rider for your electronics. I pay $27 per year (yes, per year)! It gives me $5000 coverage for all my computers and smart phones with a $50 deductible. It doesn't cover warranty stuff such as if the phone should stop working. But it does cover theft, breakage, dropping it on the street or in the toilet, etc. It probably doesn't cover the guy who swallowed his cell phone. http://www.livescience.com/54704-swallow-cellphone.html

Also, if you purchase on a credit card, many credit cards will automatically double the warranty up to one year. So a one year warranty becomes a two year warranty. Check your credit card agreements.

Posted by:

11 May 2016

I agree with your advice about extended warranties on cell phones. My experience is the system is rigged against the consumer. I have however purchased extended warranties on many large kitchen appliances through the years (mostly from Sears) and for the most part have been satisfied with the outcome.
Thanks for your helpful and informative articles.

Posted by:

Richard Dengrove
11 May 2016

I got an extended extended warranty from Dell. I don't know what I could get if my computer dies. However, it includes fast tech support you can contact at any time. Just like in the old days.

Posted by:

Richard Dengrove
11 May 2016

I got an extended extended warranty from Dell. I don't know what I could get if my computer dies. However, it includes fast tech support you can contact at any time. Just like in the old days.

Posted by:

Don Mattocks
11 May 2016

I just more than collected on my AppleCare for my iMac. I was just 2 months short of AppleCare expiring when my screen went black. After they fixed it I asked what the repair would have cost without the insurance and was told it would have been cheaper to buy a whole new iMac. Sooooo, one case where the insurance was worth the money.

Posted by:

11 May 2016

I see some positive comments about Square Trade, but my experience is just the opposite.
I purchased a refurbished phone that offered Square Trade so I bought it. I also purchased Square Trade on 4 other electronic purchases.
After about 6 months, the camera quit working on the cell phone, so I contacted them and they had me send it in. After a few days, the said my claim was denied as they stated they had discovered previous water damage which was causing the camera malfunction. I'm meticulous to a fault with my electronics, so I know it was nothing I was at fault for.
I was furious that they would offer insurance on refurbs or used items if this was indeed their policy.
I will NEVER use Square Trade again and anyone who uses them when buying used or refurb items needs to be aware of this.

Posted by:

Robert A.
11 May 2016

Having worked for many years in the electronics industry, I've come to understand that with consumer electronics, it's usually an either/or situation. Meaning that if an electronically controlled product is going to die, it is likely to happen right out of the box, or in the first three months, or so, which is usually covered by the manufacturers 90 day or 12 month warranty, or it will likely live its expected life. Devices with motors, such as washers, dryers and dishwashers, or compressors, such as refrigerators or air conditioners, are more mechanical devices, and are more likely to die sooner than purely electronic products, such as TVs and computers, which will become technologically obsolete, and discarded, before they die.

Most product warranties only cover manufacturer defects, not damage due to power surges, breakage, loss, severe impact or liquid submersion, etc. For those situations an extended warranty, also known as a service plan, sold through either the retailer or a third party, such as Square Trade will cover those situations, and often offer occasional cleanings or tune-ups, depending on the plan's terms.

For best reliability, one should try to stick with those made by the original manufacturer, such as Sony, Samsung, LG and HP, as opposed to now fourth and fifth tier brands such as RCA, Maganvox, Sylvania, Westinghouse and Polaroid, who's manufacturers have been out of business for many years. Those brand names were spun off and gobbled up by distributors who have put them on products of lower quality or technology, in the hope that consumers will purchase those products based only on their well-known names.

Posted by:

Jacklene Gill
11 May 2016

I have always felt that insurance in general was at best a bet against yourself. I never buy extended warranties and I don't buy other insurance unless it's mandated by law and I can't get around it.

Insurance started out as a scam by the gangs in New York. Back then it was called extortion. They would tell a shop owner that if they didn't pay, something would happen to their shop. Those that didn't pay had the same gang break in and tear the place up.

Those who don't study history are doomed to repeat it.

Posted by:

11 May 2016

A caveat to the advice to " talk to your insurance agent about adding a rider to homeowner’s or renter’s insurance that covers all such devices."

Too many small claims on homeowners insurance could result in being dropped by the insurance company, for the current and future homes.

Changing companies may not work either, they all have access to our claim data.

Posted by:

Hank Jaker
11 May 2016

I bought a big screen Samsung tv at Best Buy with the extended warranty and two years later the set went dark. I brought it back to Best Buy and the back light was replaced. The set is perfect and it didn't cost me a penny.

Posted by:

P Arkeri
12 May 2016

Few times for the peace of mind I had extended warranty, however my gedgets did not fail during the warranty perios.

It was waste of money I thought.

Posted by:

Marc Menard
12 May 2016

Hi Bob! I'm totally with you on this. Extended warranties are a scam. I once purchased one for a 3000$ projection TV (years ago, before the LCD ones started showing up) and the seller insisted I buy the extended warranty for 369$. His argument was that there were three lamps (red green and blue) inside and if even one was to fail, the plan would pay for itself as one bulb was more than the cost of the plan. Lo and behold, one did fail, and the seller refused to honour the warranty on the basis that the projector lamp wasn't covered. Bye-bye TV! Been using a front projector since then. They do eat bulbs too, but at least I get a 9-foot screen. Never going back to a TV...

Posted by:

12 May 2016

Jonathan, you are correct about too many small claims. But I have had none. I just feel that it was a really good deal to have the insurance rider should I lose or drop my phone, or if my computers get stolen. Of course, as Bob often says, you need to have backups of your data.

Posted by:

Tom Annis
12 May 2016

IMHO you have both good intentions and information. My personal experience with using The Verizon Extended Warranty was positive. The LG G3 was stolen, went to a non factory Verizon outlet, the replace with a new phone out of the box and did the downloads and set up. All I had to do was call the Insurer while they were setting phone up. Cost to me 120.00$
I think the moral of the story is that service varies greatly between Manufacturer and the outlet you deal with.

Posted by:

12 May 2016

Applecare does NOT cover lost or stolen phones. You must be able to return the broken or damaged product. Otherwise, they will not replace it.

Posted by:

13 May 2016

In some rare instances, extended warranties/insurance can be worthwhile. For example, I can think of at least one company that completely refunds the premium at the end of the term should no claim be made. But, you're right: other than in these rare cases, they're not worthwhile.

Posted by:

Lester Helmus
17 Jun 2016

I must give high praise to Best Buy for their extended warranties because:
1. Some years back I had a TV costing $400. On the last day of the warranty I returned the set because the DVD would not work. Best Buy said they could not repair the set and they gave me credit of $400 to buy a new TV, which I did.
2. Two years ago I bought a 4 cu ft refrigerator. They delivered it to my boat onboard. It wouldn't cool down enough. Best Buy delivered a new fridge ABOARD MY BOAT.
Even during the first year of an extended warranty it is nice to have the personal attention and help of a retailer like Best Buy.

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