is the extended warranty worth the cost

Is The Extended Warranty Worth The Cost?
By Douglas Owen

It does not matter if you are buying a car or a high end stereo system you are always asked if you want an extended warranty. Problem is, are they really worth it? For over 10 years I sold extended warranties to consumers for their automobiles. For over 10 years I made a lot of money for the dealerships I worked for when I sold the warranties. No matter if you are buying a warranty for a vehicle or a stereo system, you have to ask yourself three questions:

1 - Can I afford this warranty?
2 - Will I have to use the warranty?
3 - Can I get a better deal?

Let’s face it, if I had a crystal ball to tell me if I would use a warranty or not it would be broken from overuse. But of course, I do not. It is a gamble that many people take and it is a gamble that many people loose.

Back in the late 80’s I worked for a number of dealers as the F&ampI Manager (Finance and Insurance). They are now called Business Managers but the basis behind the job is the same, a vehicle was sold by the salesman and I printed up the “Final” bill of sale. While printing, I would talk to the customer about how they where paying for the vehicle and how long they expected to keep it. I would then print up the bill with financing and a warranty that covered everything.

Usually the customer backed out of the financing but that is not where the money is, it was in the warranty. $1,500 for a 5 year warranty pending on the car and the customer walks away happy. I would smile and joke with the owner and he would ask me what the profit from F&ampI was on the deal. I would look at him and say “$1,125″. I would then explain that I sold the extended warranty.

In all honesty the warranty sold was from a 3rd party company that deals with supplying extended warranties for vehicles. They allow for a markup of whatever a car company can get away with. The practice is not fair but then again, other companies sell extended warranties that are almost 100% profit to them. Electronics for example, you purchase a stereo for $300 and pay $60 for a warranty through that company. They pocket the $60 as profit. They only have to sell 5 extended warranties to make up for the cost of the item. Also there are so many loopholes that they can slip through.

I know that looking at the price breakdown helps to show the upfront cost of the warrantees, but the backend is what you need to know. In the last 10 years I have placed extended warrantees on most of my electronic devices. The last one was the cell phone/PDA I purchased. I have already cashed in on that one. The $100 for that warranty has already replaced the phone one and probably will do so again in the future. So in this case I was able to make the warranty worth the price. If a warranty pays out at least once for the minimal of the cost of the warranty then it is worth it.

So all in all be aware, the warranty is only worth it if you can see yourself cashing in on it. Other then that the warrantees are not worth the paper they are written on.

Copyright 2006 Mission DropShip
ABOUT THE AUTHOR:
Douglas Owen is an emarketing
consultant and author. For free
marketing tips and articles you can
re-use, visit him at Mission DropShip
http://www.missiondropship.com

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