[SCAM ALERT] 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. 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, 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. 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 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 over the past two years, from $6.99 for a single device, to $8.99 per month. There's also a Multi-Device Protection plan which covers 3 devices. That costs $34.99 per month. They should call that the "Bad at Math" plan.

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 Total Equipment Coverage, Total Mobile Protection (Single Line), Total Mobile Protection Multi-Device, or Wireless Phone Protection plan. For phones and tablets, you pay between $5 and $13 per month per covered device, or $39 per month to cover three devices. There's a $19-$199 deductible per approved claim for devices lost, stolen, or damaged. You get up to 3 replacements or repairs in a 12-month period with a device replacement maximum of $400 or $2,000 per claim, depending on device type. 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 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.

If you're just a little adventurous, you can fix almost anything with the help of YouTube. You can replace a cracked smartphone screen with a $30 repair kit, a hair dryer and a sharp blade. 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. 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.

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 ALERT] Gadget Insurance and Extended Warranties"

(See all 39 comments for this article.)

Posted by:

Kenneth Heikkila
04 Apr 2019

Brookstone massage chair extended warranty easily paid for itself. Repair people had to drive over 200 miles two or three times before offering to replace the chair (discontinued) with the next higher model.

Also Subaru (so much electronic stuff on my 2014 model) extended warranty replaced high end radio/cd/etc. player twice in less than the 100,000 miles coverage. The also replaced the short block when it started using oil, but that was under a factory recall (and a lot harder to collect on than the extended warranty.)

I don't buy them for mobile phones or other appliances.

Posted by:

Jay R
04 Apr 2019

I feel that you are wrong to call them scammers. Your language is much too polite and forgiving.

Posted by:

Dana Lynch
04 Apr 2019

I purchased a A/C wall unit from an independent store.They kept trying to convince me to purchase a extended warranty by using a mild scare tactic. I finally asked are you selling me a piece of junk, they said a course not. That ended the warranty push.

Posted by:

Steven M Bohne
04 Apr 2019

I do not purchase mfg extended warranties, nor do I purchase store warranties. I do pay for the insurance on my phone from the service provider, as it was less than 3rd party coverage. I have purchased refurbed equipment, and almost ALWAYS purchase the warranty on big-ticket items. Twice I had refurbed monitors fail, and the warranty replaced them, no deductible, no fee. YMMV

Posted by:

Daniel Wiener
04 Apr 2019

I tend to be very skeptical of extended warranties, but sometimes I make exceptions. I inexpensively covered my Galaxy S9+ via Upsie, due to the risk of dropping it and cracking the special screen. When we bought a computer at Costco, they offered a very cheap 3-year comprehensive add-on plan from Square Trade which we took. For a previous computer purchase from Fry's we also got their extended warranty, and ended up using it when the hard drive failed.

Otherwise the best deal is to make purchases with a credit card which extends the manufacturer's warranty by one or two years. Several times we've had electronic products fail just outside of the manufacturer's warranty period but within the credit card extended period, and that has saved us a lot of money. The other great deal is to buy items (e.g., TVs and computers) from Costco, which typically doubles and sometimes further extends the warranty period.

An ambiguous experience we had was with a VIP Plan from Living Spaces on a set of chairs. When one chair leg broke, we tried to utilize the VIP Plan, only to be given the run-around because they were an independent contractor that Living Spaces no longer associated with. Eventually, after much argument and many hours wasted on the phone, we were given a new chair of comparable value.

These days we just self-insure for most items.

Posted by:

Daniel Wiener
04 Apr 2019

One other amusing story: A few years ago my daughter bought a used low-mileage Prius from a Toyota dealer, and added on a 7-year 100,000 mile extended warranty for $1,800. Years later the hybrid battery pack failed, which can cost about $3,000 to replace. The car had just under 100,000 miles on it, so we tried to use the extended warranty to replace the battery. But the dealer had never actually submitted the extended warranty application to Toyota!

At first blush that sounded like bad news, but it turned out to be very good news. The helpful Toyota representative we talked to mentioned that California law extends the original manufacturer's warranty on hybrid batteries by 10 years, so we were eligible for a free battery from Toyota irrespective of that extended warranty we'd bought. Furthermore, since we had the contract paperwork showing that we had indeed purchased the extended warranty and had already paid for it, the corporate Toyota office would of course reinstate it to cover the car. However reinstating it would provide little benefit to us since we were already near the 100,000 mile mark. So instead we had Toyota refund the $1,800!

In summary, we ended up essentially having a free extended warranty, since if any major problem had arisen prior to then Toyota would have had to honor the extended warranty. We got our $1,800 back, and we also got a brand new replacement hybrid battery pack for free.

Posted by:

04 Apr 2019

I have an Epson WF7620 a very large printer/scanner, can print or scan up to aprox 13 x 18 size, originally purchase over 6-yrs ago from Office Max.

I now have three for the price of one + $35 EW. 1-yr mfgrs + 2-yrs EW.

Called them & told them that it was very slow on WIFI, they sent me another, it was also slow, so they sent me a 3rd printer. It was also slow, but I then figured out that it was my WIFI, not the printers, hooked it too a cord connection & now everything is fine.

Now I have two good extras as backups, they said for me to keep them. Thanks EW.

Posted by:

Ryan James
04 Apr 2019

I bought a Dell laptop directly from Dell. Since I live in Europe, I paid for the extra worldwide warranty. I am glad I did. Six months after the regular warranty expired, things started to happen and I had Dell on the phone.

They have repaired all the issues without a hitch.

Posted by:

nick saunders
05 Apr 2019

I can't comment on warranty plans for phones - I only buy cheap ones, so not worth considering but as far as e/w's on home appliances is concerned i generally no longer bother as on more than one occasion the appliance has failed just out of the extended warranty period.
Please note I am in Australia and I believe that extended warranties on appliances, at least, are considerably more expensive than in the states, we have also had our consumer laws tightened considerably in recent years to include such protections as 'fit for purpose' and 'reasonably expected product life' so hopefully negating further the use of e/w's.
The only exception I can quote from personal experience is my other half's washing machine (a computerised modern piece of crap) which had the controller board replaced at about 4 years and 9 months (3 months inside the e/w) so that was a win as the repair cost would have easily exceeded the e/w cost.

Posted by:

05 Apr 2019

So one more comment. When it come to consumer goods the buyer is the final quality control inspector.

When you buy a new electronic gadget like a computer or TV burn it in for three days. If there is a bad component it will likely fail during the burn in period. Should that happen return the item for a replacement. No warranty required.

Posted by:

05 Apr 2019

Good article and insithtful replies. Regarding a homeowners insurance rider, however, be careful. Some homeowner insurance companies consider a claim for covered repairs to be just as much as a claim for theft, fire, etc., and you risk a premium increase for the next few years.

I've had EMAs on two autos, and received repairs that would have cost more than the warranties. Also a refurb all-in-one desktop that had everything replaced over four in-home visits at no cost, which would have cost more than the EMA.

Posted by:

05 Apr 2019

This is an excellent article! I have a few thoughts.

First, I have always been skeptical of those gadget insurance policies; therefore, my policy has been to NOT accept their policies. This is because I have been made aware that insurance, in general, and gadget/appliance insurance, in particular, is a big racket.

Next, we live in a throw-away society, where things are fabricated to break after a time of usage. Few things are durable and intended to last. Why waste additional money on things that will fail?

Last, I always do research on products, which I intend to buy, and there are reliable sources of information. In addition, for many things, I prefer to walk into the store to check and "inspect" things on my own.

Thank you for this very informative article!

Posted by:

David Scanland
05 Apr 2019

Beware of the fine print. The small print usually negates what the large print says.
I bought an electric (battery operated) lawn mower. The sales rep said the EW covers "everything" for an additional 3 years.
1.5 years later the motor and battery failed. No problem, I bought the EW. (or so I thought).
Turns out the fine print doesn't cover Batteries or Motors or electrical parts!
On a battery operated mower!!!
Never again!

Posted by:

05 Apr 2019

On smaller items even the manufacturer's warranty is worthless. Most times one has to ship the item back to the manufacturer on the other side of the country, at a cost far more than the item is worth. Most retailers want nothing to do with their items once they leave the store.

Posted by:

Kenny D
06 Apr 2019

Whirlpool sent me several letters advertising a 2 year extended warranty for over $200. Are you kidding me?

Posted by:

David Williams
08 Apr 2019

I bought a Samsung washer and dryer in 2105 from an appliance dealer in Spokane, WA state. In addition I bought a 5 year warranty with the appliances. If at the end of 6 years I have not used the warranty I will get a credit for the cost of the warranty which was $495 towards any appliance. I paid $1098 and $495 for the warranty which basically was he full cost of the appliances. They happen to be on sale on Veterans Day. So far no problems with the appliance. There is no exp date on the credit. I will let everyone know if I was taken to the farm.

Posted by:

David Goldman
09 Apr 2019

I totally agree, and I am going to cancel the couple I do have such as Directv.
The best deal I got was the screen replacement of my 5 month old Samsung S8+ by Sprint for $29.99.

Posted by:

Linda Davenport
11 Apr 2019

I purchased my first ever EW when I bought a 2010 Volkswagen Tiguan in Jan 2017. I bought the bumper-to-bumper EW. Since then the warranty company has shelled out over 8,000.00 for repairs and I'm still having problems. It won't be much longer until what the warranty company has paid out will exceeded the price I paid for the SUV. This was probably the smartest purchase I ever made (the EW, not the Volks).

Posted by:

Phillip Jeck
11 Apr 2019

Next question I would want to know. Should you leave your desk top on all the time or turn it off daily. My last two I leave on all the time. Each one has been on for 7 years without a failure. I think turning on and off is harder on them than always on. Yes I do understand it leaves them more prone to hacks, and uses more elec. What is your educated advice Bob? Mine is only my opinion.

EDITOR'S NOTE: I leave mine on 24/7, and have done so for decades. If you have antivirus software, I can't see any additional concerns about hacking when the computer is unattended. Generally, viruses need your help to do their dirty work. If your computer goes into "sleep mode" when idle, you won't be using more than a few dollars per year of electricity.

Posted by:

The Baroness
09 May 2019

I've purchased extended warranties from Square Trade several times for various electronic items because I am disabled and cannot do even simple repairs by myself. I've never had a problem with Square Trade. On another note - Bob, I'm sad that you are running an ad on this page from WifiBlastShop. I know you have costs that must be met, but why run tech-oriented ads from companies that have been reviewed by reputable sources as being scammers? Just curious.

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