Don't waste your money: extended warranties an even worse purchase this year


Sure, the merchant you're buying that big LCD-screen television seems to be doing fine despite the economic downturn, but should you bet a great deal of money that it will still be around in a few years? Like CompUSA? That's what your doing if you buy an extended warranty, and last season 37% of those purchasing major appliances and electronics did, according to Consumer Reports. Store love it; they get to keep 50% or more of the premium, a much better margin than on the item itself.

Even the Consumer Electronics Association expects fewer of you to buy this option in 2008, and not just because you fear the company will go belly-up. Modern electronics are considerably more reliable, so many of us don't perceive a significant risk. The buying public is also showing a growing awareness that extended warranties are a bad bet; you're betting that the item will fail, while the seller is betting it won't. You're also betting that the cost of fixing the problem will be more than your warranty premium.

Face it: the company wouldn't sell the warranty unless the odds against catastrophic failure weren't in its favor.

This year, shoppers also needs to consider the dire outlook for companies such as Circuit City. If it goes down, will those warranties be honored? And while some companies sell programs that are actually run by a third party, this only muddies they question of whether or not it will be honored if the company goes under, or if the warranty provider goes bust. If it does, that warranty could be worth only the recycling value of the paper it's written on.