Are Extended Warranties Ever Worth It?

If you've ever bought a cell phone, an appliance, or any other high-value item, you've likely felt pressured to buy an extended warranty for peace of mind. However, these protection plans rarely pay off for most people.

In this episode, Wirecutter senior writer Liam McCabe explains why extended warranties are generally a “terrible investment,” how incredibly profitable they are for warranty companies, and the very few instances when paying for extra coverage might actually be worth it.

This episode covers: 

• The difference between manufacturer and extended warranties: A manufacturer's warranty is automatically included for free as a promise against defects (usually for 30 days to a year). An extended warranty, on the other hand, is an optional, extra-cost protection plan that you have to actively choose to buy.
• Why you probably won’t use an extended warranty: People tend to overestimate the failure rate of most products. And the likelihood that the product will fail during the extended warranty period is quite low.
• How extended warranties mainly benefit warranty companies: Extended warranty companies generally only pay out around 25% of what they take in, keeping 75% of the money. By comparison, health insurance companies generally pay out 80% to 90% to policy holders.
• When it’s worth getting an extended warranty anyway: Sometimes it’s worth getting one of these warranties, even if you’ll likely lose money. It could make sense if it offers you peace of mind, the product has a bad reliability reputation, or you’re buying something for an accident-prone kid.

Additional reading:

• That Extended Warranty Is Almost Never Worth the Money. This Is Why You Fall for It Anyway.
• Is That Extended Warranty Worth It? Take Our Quiz. 

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