Insurance

This Is Why Buying a New Warranty Feels Like Gambling

This Is Why Buying a New Warranty Feels Like Gambling Leave a comment

I am an economist and the founder and owner of Finance Blog Zone

new warranty

Does the idea of getting a new warranty seem daunting? Check out these helpful facts to help you learn more about purchasing one today.

Warranties are offered with every large purchase: houses, cars, and even laptops. They help ensure your purchase is protected in case of any potential defects or problems, although terms can vary wildly depending on what is covered. Because even the most effective insurance doesn’t cover everything!

Every time a warranty is offered, whether or not you purchase it, you find yourself wondering if it will really work as intended or if you’ll ever even actually use it. Unfortunately, this can make warranties feel a little like a gamble. 

gamble
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The Purpose of a New Warranty

Warranties are intended to protect high-priced items from unexpected damage from part failures and defects in manufacturing and workmanship. This protection typically covers parts that are essential to the product’s functioning and are expensive to replace or repair. 

Warranties exist for many different products, but they’re most commonly discussed in the context of cars. No matter what they cover, there’s a lot of variation in warranties, both in what they will cover and how long they last. 

The Drawbacks

The endless attempts by extended warranty providers have become a source of jokes among the general public, but there’s a reason these companies are so persistent. These retailers can keep up to 50% of the warranty’s cost, and there is typically low risk for the amount of profit generated. With how much they charge for these warranties, it can be a significant amount of income. 

These warranties are low risk because people rarely actually use them. Your purchase must meet specific conditions for them to kick in. You also have to know what’s covered by your warranty and what isn’t to ensure it isn’t duplicating any manufacturer’s warranty on the product.

Even if a covered part gives out, assuming it’s not caused by normal wear and tear, most people have already paid much more for the warranty than what they save on repairs. 

It makes sense that these companies are making a profit, or they wouldn’t stay in business for very long. That doesn’t mean their service is a great deal of value for every customer, though, no matter how aggressively they’re marketed. 

When Does It Make Sense to Buy a New Warranty

Even though extended warranties aren’t right for every product in every situation, there are times when it makes sense to purchase a new warranty. For instance, suppose you have a product that’s likely to break, such as an old car with expensive, hard-to-repair parts that are likely to give out at any time. In that case, a warranty can offer a nice safety net to cover otherwise costly repairs. 

Outside of this scenario, warranties become much less reasonable, which is especially true for products that depreciate quickly and can be purchased for the same price, or less, at the end of the warranty period. It can also be a true gamble to buy a warranty that doesn’t clearly state what’s covered. You could pay top dollar for this kind of warranty only to be unable to use it when you really need it. 

If you do decide to purchase a warranty for your car, be sure to get a warranty that’s flexible and actually has benefits that you’re likely to use. Don’t gamble away your money on a warranty that won’t cover what’s most likely to break when you actually need it.

I am an economist and the founder and owner of Finance Blog Zone

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