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My Take On “The Pitfalls of Extended Warranties”
February 22nd, 2012 by admin
Extended warranties are insurance, as the article says. Insurance is intended to make a profit for the insurer by bundling together a large number of individual risks and selling policies for somewhat more than the sum total those risks will cost the insurer (or, maybe, a lot more).
If you as a consumer buy a lot of items, as a previous commenter said, you can be your own insurance company because you spread the risk of loss over all of your purchases. After you’ve bought even 10 or so items and foregone the extended warranties, the odds are already strongly in your favor. For that $20 warranty on the $100 printer to be worth it, it requires 20% of your purchases break up advice and you would want to replace them with the exact same item! Instead, you should forego insurance on them and buy replacements for the things that actually break. You will pay much less overall. You are simply using the warranty companies’ economics in reverse, to your benefit.
The only case where you should buy insurance is if the risk you’re insuring could cause major financial problems, such as major health expenses, major legal liabilities (auto insurance), or the loss of a home or other property. Other than those things, let the dice roll.