Extended Warranties A Waste of Money?

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Short Answer: usually.

Most of the time an extended warranty on IT gear (and many household appliances) is a waste of money.

Here’s why:

Bathtub Failure Curve

IT equipment has a “bathtub” failure curve. High initial failure rate, followed by years of no issues, and then a growing failure rate as the gear wears out. So the failure rate curve looks like this:

This means paying to cover the middle years is usually wasted money. It also means as soon as anything major fails, throw it out and get a new one.

This applies to most electronic equipment and household appliances. Cars have a different curve with medium initial problems, but then gradually more and more the older they get.

But it’s even worse than the graph shows. That curve should be much steeper on the left side (the awfully named “infant mortality”). Early failures are mostly on the first day, commonly known as DOA – Dead On Arrival (whoever named this must be a morbid bunch), or in the first few weeks at most. So just like the porcelain bathtubs with their flat end near the taps, the left of this is curve is usually much more vertical.

Price

Laptops (to use a common example) typically last about 5 years, which if the laptop cost $700, works out to $140 a year to replace it – about the same price as the extended warranty. However…

New vs Old

If your laptop dies in 4 years, you will have spent $500 on the warranty, and have a 4 year old patched up laptop that is now out of warranty and near the end of the curve (where the failure rate is about to rise quite steeply). However if you had no warranty, you just spend $200 more than you would have on the warranty and you get a brand new laptop. Faster, newer, plus a new 12 month warranty.

Exceptions

There are times a warranty makes a lot of sense. Like if you are buying a laptop for a school kid who manages to destroy their calculator every few months, a warranty with accidental damage protection is probably a worthwhile investment.

Skip the Warranty

So unless you are pretty sure you (or your kid) is going to go nuclear on your gear, skip the extended warranty and instead save up for the new shiny one.

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