Extended warranties generate $40+ billion annually for retailers, often with profit margins of 50-70%. This guide helps you determine when protection plans are worth buying and when you're better off self-insuring or using credit card benefits.
The Extended Warranty Industry
- Only 20% of extended warranties are ever used
- Retailers make 40-80% profit on warranties
- Average claim rate: 4-10% of warranties sold
- Many credit cards offer FREE extended warranties
Quick Decision Guide
| Product Category | Verdict | Reason |
|---|---|---|
| Smartphones | Worth It | High repair costs, accidental damage common |
| Large Appliances | Worth It | Repair costs can exceed $500 |
| Laptops | Maybe | Depends on use case, credit card may cover |
| TVs | Skip It | Rarely fail, replacement often cheaper |
| Headphones | Skip It | Low repair cost, credit card covers |
| Small Appliances | Skip It | Cheap to replace |
| Game Consoles | Skip It | Manufacturer warranty + credit card enough |
When Extended Warranties ARE Worth It
RECOMMENDED
Smartphones (AppleCare+, Samsung Care+)
Why worth it:
- Screen replacement: $200-400 without coverage
- Accidental damage coverage included
- Theft/loss coverage available (AppleCare+ with Theft)
- Express replacement options
Cost: $99-199 for 2 years
Alternative: Some cell carriers include insurance in plans
RECOMMENDED
Major Appliances (Refrigerators, Washers, Dryers)
Why worth it:
- Average repair cost: $200-800
- Smart appliances have more failure points
- Compressor/motor failures expensive
- Labor costs often equal parts costs
Tip: Buy from retailer after manufacturer warranty ends (year 2-5)
When to SKIP Extended Warranties
SKIP
TVs and Monitors
Why skip:
- Modern TVs rarely fail within 5 years
- When they do fail, replacement often makes more sense than repair
- TV prices drop rapidly - repair may cost more than new TV
- Credit card extended warranty usually sufficient
SKIP
Small Appliances & Electronics Under $200
Why skip:
- Warranty often costs 20-30% of item price
- Cheaper to self-insure (save the premium money)
- These items rarely fail within warranty period
- Replacement cost low if failure occurs
Credit Cards with FREE Extended Warranties
Many premium credit cards offer free extended warranty protection:
| Credit Card | Extension | Max Coverage | Annual Fee |
|---|---|---|---|
| Chase Sapphire Preferred | +1 year | $10,000/item | $95 |
| Chase Sapphire Reserve | +1 year | $10,000/item | $550 |
| Amex Platinum | +2 years | $10,000/item | $695 |
| Citi Double Cash | +2 years | $10,000/item | $0 |
| Capital One Venture X | +1 year | $10,000/item | $395 |
How to Use Credit Card Extended Warranty
- Pay for item entirely with qualifying credit card
- Keep original receipt and credit card statement
- If item fails after manufacturer warranty, file claim with card issuer
- Provide documentation (receipt, repair estimate, proof of failure)
- Receive reimbursement or replacement
Popular Protection Plan Providers Compared
Allstate Protection Plans (Amazon, Walmart)
- Coverage: Mechanical/electrical failures, some plans include accidental damage
- Pros: No deductibles, transferable, easy claims via Amazon
- Cons: Claims can take time, replacement often refurbished
- Verdict: Good value on expensive electronics
AppleCare+
- Coverage: Hardware failures + accidental damage (2 incidents/year)
- Pros: Expert Apple support, express replacement, theft option
- Cons: Only for Apple products, deductibles for accidents
- Verdict: Recommended for iPhones, worth considering for MacBooks
Best Buy Geek Squad Protection
- Coverage: Mechanical failures, some accidental damage
- Pros: In-store claims, no deductibles on some plans
- Cons: Expensive compared to alternatives
- Verdict: Often overpriced, credit card better
The Self-Insurance Strategy
Create Your Own Warranty Fund
Instead of buying warranties, save that money:
- Calculate what you'd spend on warranties annually (~$200-500)
- Put that money in a dedicated savings account
- Use it when repairs are needed
- 80% of the time, you'll come out ahead
Math example: Skip 5 warranties at $100 each = $500 saved. Use $200 for one repair = $300 net savings.
Red Flags When Buying Warranties
- High-pressure sales: "This is your only chance to buy"
- Cost > 20% of item price: Usually not worth it
- Overlapping coverage: Manufacturer + credit card may be enough
- Excessive exclusions: Read the fine print
- Repair-only policies: Replacement options are better
- Third-party providers: May be hard to file claims
Questions to Ask Before Buying
- What does the manufacturer warranty already cover?
- Does my credit card extend the warranty for free?
- What's the typical failure rate for this product?
- What's excluded from coverage?
- Is there a deductible for claims?
- Can I buy the warranty later (not at checkout)?
- What's the cost of a typical repair vs. the warranty price?