[SCAM AHEAD?] Gadget Insurance and Extended Warranties

Category: Finance , Gadgets

Should you buy insurance, protection plans, or extended warranties for electronic devices or appliances? I make no bones about my disdain for these “protection rackets,” which are all heavily rigged in the seller’s favor. Why else would they try so hard to sell these plans at the point of purchase? Here's what you need to know about mobile device insurance, extended warranties for your gadgets or appliances, and my thoughts on what’s wrong with them...

Are Extended Warranties and Device Insurance a Waste of Money?

First, let me explain why I believe device insurance is a scam. Let's take smartphones for example. Device insurance policies 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 phone insurance plans have deductibles ranging from $25 to $275 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 has done over the past few years, currently up to $17 per month. There's also a Multi-Device Protection plan which covers 4 devices. That costs $45 per month. Do you think you'll get $960 worth of value over the course of 24 months?

The extended warranty and device insurance scam

Some extended warranties provide that you must accept a refurbished device if a replacement is granted. Others go further, saying that you may receive a replacement of the "same or comparable model." Guess who decides what "comparable" means?

And speaking of refurbished replacements, here’s a 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 Verizon Mobile Protect, Verizon Mobile Protect Multi-Device, Total Equipment Coverage, Wireless Phone Protection, or Verizon Extended Warranty plan. For most phones, you pay between $7 and $17 per month per covered device, or $50 per month to cover three devices. There's a deductible of $99 per approved claim for devices lost, stolen, or damaged. You get up to 3 replacements or repairs in a 12-month period. That's the large print -- and it gets more complicated from there, as plans, prices and claim limits vary from state to state.

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” for a 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 couple hundred dollars for two years of coverage on a big-screen HDTV. And after 24 months, they'll hit you up again to extend your coverage.

Of course, these extended warranties are profit center for electronics and appliance retailers. Ask your salesperson if they receive a commission for selling the warranty, and if they think that creates a potential conflict of interest. You should also factor in the reliability of a product when considering a warranty. Check reviews to see what past buyers have to say about likelihood of failure. If it's low, an extended warranty may not make sense.

If you're just a little adventurous, you can fix almost anything with the help of YouTube. I've replaced a few cracked smartphone screens with a $30 repair kit, a hair dryer and a sharp blade. I've found parts and instructions online to fix my own washer and dryer. I even replaced the carburetor in my 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. Costco includes a 2 year warranty with most electronics and extends that to 4 years if you use the Costco Visa card. Check with your credit 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 savvy reader told me that his "home computer" endorsement also covered smart phones with a $50 deductible. The cost was only $18/year for $5000 of coverage on all computers, smart phones, tablets, etc.

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. AKKO is a Squaretrade competitor, and they offer a clear comparison of their prices and services. Upsie is another warranty provider that claims you'll save up to 70% compared to in-store, and promises confusion-free coverage with no surprise fees.

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. The fact that insurance companies are very profitable should confirm that. 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 AHEAD?] Gadget Insurance and Extended Warranties"

Posted by:

Stephen G
08 Jan 2024

It has always amused me that the manufacturers of everything always let you know they stand behind their product for one year. Of course they do, it is required by the government. The Costco warranty is the best in the business, at no cost. They actually told me to wait until my warranty with Lenovo was over, because Lenovo would not honor their warranty, and then gave me a full return on the junk laptop that Lenovo makes.

Posted by:

08 Jan 2024

Years ago I sold primarily TVs and VCRs at a local Midwest electronics retailer. We had to learn the equipment we sold, ourselves. However, we attended a two-day course on "how to sell extended warranties". That was the profit center!!!

Posted by:

Ernest N. Wilcox Jr. (Oldster)
08 Jan 2024

I agree with Bob. As far as I'm concerned, those 'product protection' plans (scams) amount to little more than a way for the seller to get extra profit without providing any added value. A man named Barnum famously once said, "There's a sucker born every minute!". If you spend your hard-earned money on any of these 'product protection' scams, I believe he may have been talking about someone like you.

I assemble all my desktop computers from components, so I can repair them myself. If I ever have an issue with my phone or any other device in my home, I'll check online to see if the issue is something I can repair myself.

My ability/willingness to fix any device myself is usually a function of several factors. I first consider the cost of parts and any specialty tools I'll have to purchase to accomplish the task, along with whether those tools can be used for other purposes. Next, I factor in the value of the time I'll spend completing the repair. Finally, I consider the cost of having the repair completed professionally, and the value of any warranty I receive on the repair work from the repair shop I choose to complete it. More often than not, the cost of repairing the majority of devices I have in my home myself turns out to be greater than the cost of having a professional technician complete the task for me.

If a device fails while under warranty, I have the manufacturer/seller resolve the issue for me. If not, I use the criteria described above to either repair it myself, have it repaired professionally, or replace it. I never forget that the most cost-effective way to 'repair' a broken device may sometimes be to replace it. When that appears to be the case, I factor in the cost and time required to properly recycle it, then I choose the most cost-effective solution.

This goes beyond the scope of this article, but I think it's related. When I purchase any new device, I try to get the highest quality I can afford because I've learned that 'buying cheap' ends up costing more in the end. I take my time, and do my research before making any purchase decision, and I always keep in mind that the best bang for the buck isn't usually the cheapest price. More often than not, it involves the total cost of ownership over time, and that's much harder to determine unless you do your research.

I hope what I've said here helps others,

Ernie (Oldster)

Posted by:

08 Jan 2024

not quite the same, but along the same vein, years ago the big 3 or 4 appliance stores would price match and then some, the catch was, it had to be the same model number, but it could have been the exact, take clothes washers for example, the manufacturer would give the same washer a different model number for each retailer, by one number or letter different, so they really didn't price match, sane thing at Lowes can be the exact product, but won't price match, because it has a different brand nane!

Posted by:

Bob K
08 Jan 2024

And, how long will the seller be around? I have a few of the gold pin vacuum tubes from Radio Shack that were sold with a lifetime guarantee.

Who would honor that guarantee these days?

Posted by:

09 Jan 2024

A tube what? :) Have to be old enough to even know what those are... Thx again Bob for a good reminder on warranties AND where to find alternatives. Appreciate the great comments too! I think you have a great reader base with wonderful experience to share... No matter your age!

p.s. They do still make tube amps, but I think a person is out of luck for RS warranty.

Posted by:

09 Jan 2024

About a year ago I bought a 12 pack of gel pens at Office Depot, at check out was asked if I wanted to buy the extended warranty. Kooky!

Posted by:

09 Jan 2024

I never buy extended warranties -- with one exception. My washing machine. The warranty is expensive, but with each washer needing service or dying every few years, the $350 extended warranty has been cheaper than replacing them at $1300 each, as it includes replacement if the washer can't be repaired

Posted by:

09 Jan 2024

Thank you, Bob, for another informative article! Even though all of your articles are good, this one was of special interest, as I avoided a gimmick from the ATT representative that, in a very underhanded manner, almost had me "sign up" for that scam insurance. [By the way, in reference to another one of your articles, I plan to switch to another company.] Also, since I am also very handy and capable, I do my own repairs for most things. As an example, when we had the upgrade to Windows 11, I replaced the motherboard for my desktop. Once that was all good, I upgraded from Windows 10 to Windows 11. Plus, I installed Linux, setting up a dual boot system. I saved lots of money for performing the upgrades, instead of buying a new computer. Last, I also appreciate the additional insight from Ernest and many of the other readers. Thank you!

Posted by:

Robert van Ruyssevelt
09 Jan 2024

In New Zealand the Consumer's Guarantees Act means that goods must be fit for purpose and for a reasonable number of years (anything from two to ten years depending on the item) and if it fails within tht period the retailer has to either satisfactorily repair it, or replace it or give you your money back. This does not stop retailers from trying to sell you an expensive and redundant "extended warranty" which is a complete con

Posted by:

Hal Persails
13 Jan 2024

Great article. I believe Bob is totally correct.

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