25 Rules to Grow Rich By #25: Warranties

The Simple Dollar is running a series in which we re-evaluate Money Magazine’s “25 Rules To Grow Rich By”. One “rule” will be re-evaluated each weekday until the series concludes; you can keep tabs on the action at the 25 Rules index.

Rule #25: When you shop for electronics, don’t pay for an extended warranty. One exception: It’s a laptop and the warranty is from the manufacturer.

Most extended warranties merely serve to put more cash in the hands of overzealous retailers like Best Buy. They try to get you to get the “four year plan,” but most consumer electronics are designed right out of the box to last at least that long, as they’re designed now to last five to ten years before having significant problems.

So, the rule is correct in the general case. What about the specific case of the laptops, though? Should one purchase a laptop warranty?

A few years ago, the answer would have been an unequivocal yes. Laptops were in the process of moving from luxury items to essential workplace pieces and many laptop producers weren’t gearing up well for the market changes. Stories about faulty Dell laptop batteries and other things caused people to freak out and often demand laptop warranties, plunking down the extra cash.

Today, though, laptops have become a common consumer item. It’s crossed what I like to call the “Black Friday” threshold: if an electronic item is sold at almost every major outlet at a steep discount on Black Friday, it’s probably become a very common item and the manufacturers have geared up to meet market demands (and probably exceed them). It’s cheaper for the manufacturers to ensure some levels of quality right off the line, especially when they’re competing with other manufacturers; not only is reliability an important factor in the purchasing decision, but the return process is expensive for the seller. Better to spend a dollar or two more to make a more reliable device than deal with lots of defective reports once an item has reached a mass-market threshold.

Thus, I would chop off that final caveat and leave the basic rule in place.

Rule #25: When you shop for electronics, don’t pay for an extended warranty.

You can jump back to rule #24.

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15 thoughts on “25 Rules to Grow Rich By #25: Warranties

  1. Ellen says:

    Caveat to this: unless you’re buying a Mac. Apple knows that it’s the only place you can go for OSX-y goodness, so the hardware is STILL crap. If you plan on getting this overpriced junk, do spring for the extended warranty, unless you like replacing your computer every year.

    PS I have had several iBooks myself, so I don’t mean to be a hater, but seriously, I’ve had so many hardware problems, I would almost switch to a PC at this point.

  2. EJS says:

    MindEase note: The one warranty I would never do without is the Dell Complete Care warranty. Since I have 3 kids, I wanted something that would cover the accidental damage my kids are almost SURE to create to either my or my wife’s laptop. With the complete care warranty if they spill a juice in it, Dell will clean it, repair it or replace it. And with an 8 year old, a 6 year old, and a 5-month old… Accidents will happen. Granted, it cost me quite a bit, but… I think it is well worth the peace of mind.

  3. Chris Byrne says:

    There is one reason to buy a factory extended warranty for a laptop, and that’s the LCD.

    The standard factory warranty typically offers little or no coverage for LCD damage, and what coverage it does offer is for a reduced length of time in comparison to the full warranty.

    If the factory extended warranty plan covers LCD breakage, and will cost you less than 25% of the cost of the Laptop over the time period in which you plan on owning it before replacement (typically 3-4 years), then it is worth it; otherwise forget it.

  4. jake says:

    Like the posters above you should get warranty on a laptop. My sister’s laptop which is only two years old, had its fan go dead, and overheated her laptop. The cost for repair was so insane, she ended up buying a brand new computer for the same price as the repair.

    Another thing is that a lot of warranties include virus cleaning and system recovery. I recently recommended this to a friend of a friend who was buying a computer for the first time. A few months later he had to bring the computer in because it was loaded with viruses. Without the warranty the store would have charged him close to $200. I highly recommend this if you know little to nothing about computers.

  5. Chris says:

    I disagree with this under one caveat. I payed for the 3-year extended warranty on my HP laptop because it was my work laptop, if anything went wrong every day that went by would cost me money. The laptop is lugged around in a bag every day and so is open to issues and breakage from every angle everyday. Knowing that when my laptop goes down I can get it replaced in a few days is great, and one single repair bill would have outweighed the $130.00 cost of the plan. I consider it cheap insurance for both the merchandise and for profitability.

  6. Wilfried says:

    I usually go for the 2 or three year manufacturer next business day on-site repair warranty. It was always relatively inexpensive ($150-$200 for 3 years) and I used it every time I got it, no matter what the laptop brand was. My USB port got fried, I call them up they repair it in my home. My LCD has several bad pixels I call them up, they exchange it at my home. The “on-site repair” feature is just great and for me it’s worth every penny. I just don’t want to be without a laptop for days or even weeks in case I have to send it in for repair. That also makes you actually use it because you don’t have to balance between the hassle of sending it in and getting the repair done.

    For all other electronics I strictly agree.

  7. Matt says:

    As an IT manager for a mid-sized firm that uses a lot of laptops, I can say that I’d NEVER buy a laptop without an extended warranty. The article’s advice that because laptops are a mainstream commodity, they must be reliable is shoddy advice at best. Buyer beware, most laptops only come with a 90 day warranty (1 year on business models). I have seen as much as a 50% failure rate on certain models within the 3 year rotation cycle we use. Laptop repairs are usually quite expensive ($500-$600 for LCDs or System boards).

  8. John says:

    These comments are too old to still be relevant.

    Cheap (less than 200) extended warranties (3 years) that repair on site are worth it but otherwise…..

    Good laptops are easy to get for less than 1000. Paying 300 for an extended warranty makes no sense.

    Look at it this way…would you pay $9000 for a bumper to bumper warranty on your new $30000 car which would push the purchase price up to $39000.

  9. Erik says:

    I disagree with this part. I bought an Xbox 360 after hearing about the Red Ring of Death. I paid $399 + $60 for the 2 year warranty. After replacing it a couple times from it breaking, i headed in to the store with a couple days left on the warranty. At this time, the price had dropped to $299. They gave me back $399 and I then bought another Xbox 360 and a warranty, and getting $40 back. I then did this two years later when the Xbox 360 dropped to $199 and I received another $40. So I spent $399 on the Xbox and $120 on the warranties. But I received $80 back. So a $40 warranty for 4 years… More than worth it. And for the convienance of going to the store and giving them the broken one and picking another up(Total time 1 hour) it is more than worth it compared to Microsoft’s 1-3month turn around sometimes. If you are going to be using and abusing the item, than a warranty is worth it.

  10. rodgerlvu says:

    thanks for your help…

  11. Outdoorseaguy says:

    I’m still torn about the extended warranties when it comes to computers. I’ve bought several Macs, which – no offense to Ellen – have been the best computers I’ve ever bought. I’ve bought AppleCare for my Macs and never regretted it. If my computer breaks, I can take it to the Apple Store and not worry about the cost of replacing an expensive LCD or getting the motherboard replaced if something ever happens. To this day, though, I haven’t had an issue that’s required me to use the AppleCare. Yes, I spent money on insurance, but like an emergency fund, I’m glad it’s there if I do need it.

  12. MGY_Bay Area says:

    Its so true that its not worth to buy a warranty for electronics except laptop. we bought a SONY digital camera from Best Buy with 3-year warranty. It broke a couple times, so we took it to best buy.It didnt get better but, by then the warranty was expired already. So, we couldnt do anything. Note: they dont replace the broken electronics. they just kind of repair them.
    now, we dont buy warranties, unless its a computer!

  13. Only time you should pay for warranty is within six months. That’s when things go wrong if they are going to. The “what if” factor catches so many people. Be brave it won’t break!

  14. chris says:

    This rule applies to everything EXECPT MAC PRODUCTS. i have had a iphone 3g, macbook pro, and mac mini.. all 3 broke with in 2 years all bought the same year…. GOOD thing i bought the extended warrantee from best buy because Apple wanted 900 dollars to fix it PLUS shipping…..

  15. zoe says:

    I’ve bought two laptops in the last 5 years, both decent brands and both with an extended warranty. The first computer needed repairs after about 1 year (past the built-in warranty) and again about 6 months later. The second computer’s screen died after 3 months – this probably would have been covered by the built-in warranty, but instead of needing to mail in my computer for repairs and waiting weeks or months for a computer I needed daily (student), I could drop it off at the store and pick it up a few days later.

    It will take a lot to make me buy a laptop without an extended warranty considering the price is often much less than a single repair – and repairs seem to be needed more often than not.

    We just bought a 500$ TV with a 100$ warranty for 4 years; 100$ insurance for 4 years sounds pretty reasonable to me – even if we never have to use it we won’t have to worry about affording a new TV for at least 4 more years. I don’t believe they make TVs to last “5 to 10 years” these days considering all the people I know who’ve needed repairs after a few years.

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