Companies are in business to make money, and while there's nothing wrong with that, it doesn't mean you should just hand over extra cash for no reason. That's basically what you're doing whenever you buy an extended warranty. Stores wouldn't offer extended warranties if they weren't making a profit off them (which is why you can purchase a warranty on anything from microwave ovens to video games nowadays), so statistically speaking, it's much more likely that you're paying for nothing than saving yourself money down the road.
For example, when you buy a new item -- say that cheapo not-so-HD TV you were scammed into buying during the faux Black Friday sale -- you might've been tempted to pay several hundred dollars for an extended warranty. But what the eager sales associate didn't tell you is that besides the fact that you're spending more than what the TV will cost to replace it by the time it defaults, there's a good chance that the warranty won't even cover whatever goes wrong!
Extended warranties are extremely unreliable, and even if something's covered, there are usually limits to how much work the company will perform to fix the problem. Plus, many extended warranties' coverage overlaps the manufacturer's warranty, which means you're paying for something you already had. Just save your cash and take your chances -- it's less risky.
- Ammer, Christine. "Rain check." Dictionary of Idioms. Dictionary.com. 1997. (Feb. 19, 2011).http://dictionary.reference.com/browse/rain+check
- BlackFriday.com. "Black Friday History." 2011. (Feb. 20, 2011).http://blackfriday.com/black-friday-history
- Huffman, Mark. "5 Reasons Not to Buy an Extended Warranty." Consumer Affairs. Nov. 15, 2005. (Feb. 19, 2011).http://www.consumeraffairs.com/news04/2005/extended_warranty.html
- Kavilanz, Parija B. "Little secrets of 'out-of-business' sales." CNN. Jan. 23, 2010. (Feb. 19, 2010).http://money.cnn.com/2009/01/23/news/companies/dirtysecrets_sales/index.htm?postversion=2009012317
- Ransom, Kevin. "Some Extended Warranty Policies Prey on Consumers." AOL. Jun. 10, 2009. (Feb. 20, 2011).http://autos.aol.com/article/car-warranty-scam/
Dollar stores — where most items cost just a buck — always seem to make money. HowStuffWorks finds out how they do it.