Extended warranty insanity

I haven’t posted in a while, but I am hoping to change that.

Anyway, today I was at Best Buy and I bought an inexpensive pair of JVC Gumy Headphones.  They were on sale (10% off) and I actually had a Reward Zone coupon worth $10, so they were actually “free to me”.  I bought these locally instead of online because I needed them tomorrow and I wanted to physically see the options.

Why did I buy such a cheap pair of headphones?

  • I already own a really good pair of headphones that I love.
  • Ear bud headphones tend to get a lot of abuse and break.
  • Most ear buds are the same, so why pay more for them.
  • I have a friend that bought a $200 pair of Monster ear buds and he is on his 6th pair (the previous 5 had broken).

So here I am buying a cheap pair of headphones for “free” with my coupon and the guy behind the counter proudly (seriously) offered me a 2-year extended warranty plan.  The guy really thought it was a good deal, because “we replace these things on the spot, no questions asked for up to 2 years”.  Now, it is well documented on the Internets [sic] that these extended warranty plans are really nothing more than overpriced insurance and major money makers for the likes of Best Buy and others.  But this particular deal wasn’t just bad it was obscene.   The price of this “warranty” was $5.  That is not a typo, it was 50% of the purchase price.  If it cost me 50% of the value of my car to insurance it for 2 years, nobody would ever do it.  So while it should be obvious, let’s breakdown just how bad of a deal this is:

  1. The “warranty” is for 2 years, but the earphones come with a 1 year manufacture warranty, so I am really only buying a single year of “protection”.
  2. I don’t know exactly, but the failure rate for most consumer electronics is less than 10% in the first two years and picks up to 20-30% in years 3 and 4 (after the warranty period is over).  Using this math, on average… you have only a 1 in 10 chance of making use of this insurance, but the cost priced in a 1 in 2 chance.  I would have MUCH better odds, betting my $5 on a single hand of Blackjack.

I believe the live within your means tip here is to not over pay for insurance and not to buy insurance you don’t need.  Pocket the money instead and be your own insurance company.


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1 Response to “Extended warranty insanity”

  1. How not to blow your tax refund at Below Your Means: A money blog for the rest of us. (BETA)

    […] the money into a self-insurance fund – We here at BYM are not fans of being over insured and buying “warranties” on products because you can’t afford to replace them later is never a good idea.  Put the […]