Are Extended Warranties on Electronics Really Worth It or a Total Wast of Money?

You've been waiting in long lines and you've finally made it to the cashier.  You finally have the gift that you've been on the hunting for having been in every store in the area.  Luckily, you spotted the deal of the decade in the newspaper and you feel really proud of your accomplishment as you're pulling out your wallet to pay.

The cashier then asks you, “Do you want to purchase the extended warranty on that?”  Crap.  Another sales pitch.  Or is it?

I've often wondered if extended sales warranties are worth it.   When I was in college, I had a certain Pentax camera that I was fond of (yeah, I'm dating myself here a bit).  For an extra $30 – if I recall correctly – I could buy an extended warranty that would allow me to bring it back directly to the store to swap it out immediately.   I was sold.

And you know what?  It paid off.  While on a hiking trip, I slipped and busted my camera's lens.  Sure enough, the retailer took it back no questions asked.  Score for me.

As I get older now, I start to question if the newer extended warranties are really worth it.   What is also a growing trend our third-party extended warranties.  In some cases, third-party warranties might be cheaper and easier to claim.  Don't just take my word for it though.

I had a chance to interview Steve Abernethy, CEO of SquareTrade.  SquareTrade's mission is to provide excellent and affordable warranty coverage to consumers. Our warranties are offered by many fine consumer-oriented retailers such as Amazon.com, Crutchfield and Buy.com.  Their site claims to offer warranties up to 70% lower than their competitors.

I did a quick tour of their site and for a recent item that I purchased – my Flip Ultra HD camera – at Best Buy the extended warranty would cost $22.98 vs. $19.99 at Square Trade – for a savings of 14.9%.

I was curious to learn more about SquareTrade and extended warranties so I asked Steve the following questions.   Introducing Steve……

1 What's the biggest misconception regarding in-store warranty policies?

Most stores' salespeople want you to believe that you don’t have a choice on warranties. Ironically, they offer 20 TVs but you only have 1 warranty choice at the checkout. They also want you to believe that you have 1 chance to buy at the counter, with no ability to research, and that their offer is your only chance at protecting your device.

You do have a choice. Providers like SquareTrade allow you to research and buy without pressure, for much lower prices usually.  You can also make more informed decisions – compare prices, read customer reviews, and understand what is actually covered by the contract.  Most of all, you have up to 30 days to decide if a warranty is right.

2Are there any times or products that it may make sense for?

Warranties make the most sense when:

3Tell me a little bit about third party warranties and how they came to exist?

SquareTrade recognized consumers were paying too much for warranties and getting mediocre service. We realized there was an enormous opportunity to create a more sensible service with much greater consumer controls.

SquareTrade also saw a huge opportunity to use the internet to be more open to consumers vs. being opaque and hard to research like the status quo.

SquareTrade believes that warranties are no different from other products – but they are sold by stores in a way that makes it so that consumers don’t really have this knowledge. Therefore, the stores don’t have to offer competitive prices, nor do they have any incentive to deliver amazing service.

So SquareTrade built its whole service around allowing consumers to research and easily rate us (good or bad) for others to truly understand the real service experience. This is how consumers buy everything today, so why not warranties? The status quo has made research really hard as it exposes their service as dreadfully slow and hassle filled.

We also saw the internet as critical to do price research. And finally we saw the internet as a better way to help consumers store, manage and find their warranties vs. losing the paperwork in a shoe box.

4Who is the ideal client for your company? How can they know that will honor the policy?

Any consumer who has ever considered a warranty at the store should know about SquareTrade.  Anyone who does their research will see SquareTrade is both dramatically less expensive and a much better service than the store warranty.

We believe in transparency and make it very easy for customers to review our service for others to see.  A customer can google “SquareTrade Reviews” and see what tens of thousands of other SquareTrade customers – who have experienced our claim service – have said about it.

You can read our reviews on sites like:

• Reseller Ratings:  http://www.resellerratings.com/store/SquareTrade
• NexTag: http://www.nextag.com/SquareTrade~3300135zzzreviewsz1zmainz17-htm
• Google Product Reviews: http://www.google.com/products/seller?zmi=squaretrade.com
• iTunes App Store: http://itunes.apple.com/us/app/warranty-this-device-squaretrade/id340816768?mt=8

5Are there any “buyer bewares” that consumers should know about third party warranties?

Most warranties that you buy at the store are actually administered by third party companies – they are just white labeled by the store, so you think you are buying the store’s brand.  Consumers should be cautious when buying these warranties

3 things a consumer should ask about a warranty:

1. Does it have a service guarantee? Most warranties don’t guarantee speed.  You may be without your laptop for 2 months while they track down a part.  SquareTrade has a 5-day service guarantee – if your item isn’t fixed, replaced, or reimbursed within 5 business days, we haven’t lived up to our standard of service and we will refund you the cost of your warranty.
2. What kind of paperwork is required? Most warranties require tons of paperwork.  Some even required a notarized affidavit to file a claim.  SquareTrade requires zero paperwork – all of your information is stored online.  We even make it easy to store your proof of purchase online, so you never have to worry about digging up your item receipt.
3. What is actually covered? Many warranties have hidden gotchas.  Some don’t cover shipping fees to the depot.  Some don’t cover failures from a power surge.  Best Buy’s accidental damage protection plan covers spills, but not full immersion – so if you’ve dropped your phone in the sink, you’re out of luck.  SquareTrade makes it very clear what is covered – including all of the above.

6Closing thoughts?

We are warranties for the 21st century.  We make it extremely easy for customers to take care of their warranty online.  From the time of purchase, we make it easy to find what other customers are saying about SquareTrade – both the good and the bad.  We also help them compare prices so they know they’re getting the best deal.

We then make it easy to do everything online – store their receipt, file a claim, transfer their warranty, cancel their warranty, view their contract.  It’s all there, so there’s never any paperwork required.  Other extended warranties require significant paperwork to be dug up, some even require a notarized affidavit from a consumer to file a claim!

We are also the only warranty company with a 5-day service guarantee.  We don’t believe it’s reasonable for you to have to wait for more than 5 days for service.  If it takes more than 5 days, we will refund you the cost of your warranty in addition to your claim – we haven’t delivered on our promise of great service, so you shouldn’t have to pay for it.

Thanks for Steve for the interview! If you're a techy like myself, it won't hurt to price shop SquareTrade vs. your other retailer.  I”m always about saving a few buck here and there and I'm sure you are, too.

photo credit: JVCAmerica