Warranties: Insurance For Your Wallet (Part 2)

In my last post, I promised to cite specific reasons when/why I believe you should consider warranties for large purchases and also to reveal which of the three large expenses from my last article were covered by warranties.

The three items from my previous article were as follows (part 1 here):

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A warranty is really no different than an insurance policy. And insurance, regardless of what anyone says, is actually just gambling. The insurance company (in this case the manufacturer or store) is betting that you will not need the policy or that the benefit that is paid out by the policy will be less than the total cost. On the other hand, you as the consumer, are betting that the cost of repairs or replacement for a particular item is worth much more than the cost of the warranty on the item.Warranties are really that simple. The following are three of the biggest issues when it comes to people not purchasing warranties at the right time:

1. Unrealistic Estimates about repair costs
2. Unrealistic Expectations regarding quality of the item
3. Bad assumptions about product use and care for the product

When evaluating a warranty, it is important to consider what the potentially most expensive thing that could happen might be. For cars, it is often a new engine or transmission. For laptops, it is usually a fried motherboard or screen replacement. Understanding the real cost for these “most expensive” repairs gives you an upper bound on the cost that you are buying the warranty for.

Considering the quality of the item is key. As with anything of value, research is crucial to make sure you are getting a good value. If you are buying the low-end or are getting a really good deal, there may be a reason for it and purchasing a warranty for a low-price might be a decent safety play to make sure that the item is covered.

Finally, being unrealistic about product use can be a killer. Someone who buys a car and does not consider if they will be putting heavy wear and tear on it could be making this mistake. Wear and tear on anything is natural, but when the item you are purchasing is a necessity and the wear and tear might be severe, it makes a warranty worth considering.

Personally, for larger electronic items, I generally recommend purchasing a warranty since there is a high probability of expensive repairs. For cars, again the potential for a high repair bill must be considered.

The bottom line is that each situation is different, however. And your personal skills in repairing or having a cheap resource (like a mechanic in the family) might also impact your decision.