LIAM: The likelihood that the product will fail during the extended warranty period is quite low. People overestimate the failure rate. So you end up paying these premiums for protection that, in all likelihood, you will not end up using.CHRISTINE: I’m Christine Cyr Clisset, and you’re listening to The Wirecutter Show.CHRISTINE: Hey there, it’s Christine. If you’ve ever bought a computer, a cell phone, an appliance, or any other purchase of relative value, you’ve probably been offered an extended warranty. Maybe a salesperson asked you if you wanted to purchase AppleCare after you bought a phone, or maybe you were offered an extended warranty at checkout on a website when you were making an online purchase. And at that moment, you might have wondered, will paying a little extra now for an extended warranty, say 50 or 100 bucks, or maybe a monthly fee of something like $16, will that save me a big repair bill if this thing breaks? Will it provide me with some kind of insurance against a future hassle?In today’s episode, I’m exploring this topic with Liam McCabe, a longtime Wirecutter reporter. Liam has been reviewing and writing about large appliances, HVAC systems, and home improvement solutions for over a decade. Basically, he covers big stuff that costs a lot of money. He just published an article that makes a strong argument for why you should almost never buy an extended warranty, at least not for most of the things you have in your home. We’re going to get into the math, the psychology, and the big business of extended warranties after the break. Be right back.CHRISTINE: Welcome back. Today, I’m speaking with one of my longtime colleagues, senior writer, Liam McCabe, about extended warranties, and why you should almost never buy one. Liam, welcome to the show.LIAM: Thanks for having me.CHRISTINE: I am thrilled to actually have you in the studio this time. We’ve talked to you before, but it’s really nice to see you in person. Okay. You’ve been reporting about and reviewing appliances, HVAC systems, and other large expensive things that people buy for their homes for a long time. You did a stint at Consumer Reports and at Reviewed. So you’ve probably thought a lot about when it’s worth getting an extended warranty on any number of purchases. So going into this investigation, what was your take on extended warranties?LIAM: I went into this, I had a period a few years ago of listening to a lot of personal finance experts, just to kind of get my house in order, and they cover a lot of topics, but one that came up in a bunch of places was extended warranties and why it’s generally not a good use of your money in pretty much any scenario. And I didn’t look into it much deeper than that at the time, but I kind of had it in the back of my mind that this might be something worth writing about at some point.CHRISTINE: What is the difference between a manufacturer warranty and an extended warranty?LIAM: Right. So a manufacturer’s warranty automatically comes with the product when you purchase it. It’s written down somewhere in a pamphlet or on the box or maybe on the product listing online, and that is basically the manufacturer, it’s their promise against defects usually for a certain period of time. Most commonly, it’s about a year for major appliances or expensive electronics. It can be 90 days, it can be five years, lifetime, you have to look at the specifics. But it’s automatically included with the purchase. Often, it’s like a sweetener to convince you to buy that product instead of something similar.CHRISTINE: So if I buy a washer and dryer combo at Home Depot, it’s usually coming with some kind of manufacturer warranty. If I’m buying a computer at Apple, it’s coming with some kind of manufacturer warranty. There’s some guarantee that this thing, if it breaks within this amount of time, they’ll take care of me, right?LIAM: Right, yep.CHRISTINE: And so, the extended warranty goes beyond that, where you’re going to have maybe it’s three to five years extended warranty covering certain things if they break, right?LIAM: Yep.CHRISTINE: What are some examples of common extended warranties that people might be offered?LIAM: AppleCare, I think, is one that people will be familiar with. So when you buy a phone or iPad or Mac, whatever it is, they will offerAppleCare+ or AppleCare One, It’s additional coverage on top of the manufacturer’s warranty. So I believe the iPhone has a one-year warranty on it, for example, and that will protect against defects or manufacturing errors. AppleCare+ often protects against accidental damage or sometimes loss or theft. And the way that they’ve restructured that one, you now pay a monthly premium instead of a lump sum. So basically, as long as you keep paying that monthly premium, you will have that extra protection on that product.CHRISTINE: If you are bought into the Apple ecosystem, you surely have been offered AppleCare. But what are some other examples, common examples that people might run into?LIAM: Yeah. Best Buy Geek Squad is a longtime popular one. They now have a store membership program that offers similar benefits. Even checking out on smaller e-commerce websites, you’ll usually see some kind of protection plan offered. There’s smaller companies, like Mulberry is a newer one, Extend. And on Amazon, for example, you’ll see Asurion, which is actually one of the bigger companies. They have a big bundle. You pay $16.99 a month for Asurion Complete Protect, I believe it’s called, and that will cover everything that you buy on Amazon that’s eligible. There was someone I talked to for this story who had purchased that, and his headphones broke right outside the manufacturer’s warranty period, and the Asurion plan, it covered him, and he filed a claim with them and got the process started. Got a little more complicated than that, but…CHRISTINE: Liam, when our journalists are reviewing different products, they are oftentimes looking at the warranty as one of the pieces that they’re considering in whether they’re going to recommend something. So when I used to cover sheets, for instance, we really loved L.L.Bean because they had this great one-year return policy at that point. How should people be thinking about their purchases when they’re thinking about that manufacturer’s warranty? Let’s set aside the extended warranty for a second. Is there value in these manufacturer warranties, and how long should they be?LIAM: Yeah. So a manufacturer warranty, you can absolutely look at it when you’re considering buying a product. It’s just part of the deal. You don’t have to decide whether or not you want it, they just give it to you. So take that into your calculation when you’re deciding whether you want something or not. And yeah, there are many cases where we recommend something because it’s got a better warranty than some of its competitors. I think maybe our electric kettle, like the Cuisinart kettle that we recommend has a longer warranty than some others like it. Some of our luggage picks,. Leatherman Multi-Tools is a famous one. They will repair it, I think, just for the cost of shipping for years after you buy it.So if you know that this product you’re about to buy, you’re going to want to have it in your life for a long time, yeah, maybe pay extra for a version that has a longer warranty. You can’t always find it. There are a lot of categories where that just doesn’t really exist. For major appliances in particular, it’s just usually one year across the board, with a few exceptions.CHRISTINE: And I think we often gauge the length of a warranty as a measure of how confident the company is in the durability of that item.LIAM: That’s the way that I think a lot of people think about what warranty means. I don’t really get into this in this story. It’s something I want to look into a little more. I think it’s more complicated than that. I think the warranty itself can be used as a marketing tool, and there’s nothing wrong with that. It signals confidence whether or not the quality of the product is really superior or not.There’s one research paper I found, and again, this isn’t in this story, but since we’re talking about it. The products that are best positioned to offer the longest warranties are very high quality and very expensive products, which makes sense because you can build it to a level of quality that it’s unlikely to fail. Plus, you’ve also charged so much upfront that you can build in the cost of service into your business plan as a company that’s on the hook for that warranty.The other kind of business that can offer a really good warranty is a company selling a very cheap product because it costs very little to replace. If you can manage to convince someone to pay an inflated sticker price, something with a relatively high margin compared to what it cost to produce, then yeah, you can just swap them in and out.CHRISTINE: Yeah. The example of that, I’m not going to name names because I don’t want to throw any companies under the bus, but my husband loves a certain brand of sunglasses, and they break pretty regularly, like every eight months, and he has used the warranty to get these sunglasses replaced five or six times.LIAM: Exactly, yeah.CHRISTINE: Yeah. Okay. So Liam, what’s the big takeaway when you’re looking between a manufacturer warranty and an extended warranty?LIAM: So the manufacturer warranty is included with the purchase of the product. You get it no matter what. The extended warranty is optional. You will often be offered a protection plan, extended warranty when you’re checking out, either at a register or on a e-commerce checkout page. You actively have to choose to buy it, and it costs extra.CHRISTINE: In theory, it kind of sounds like an extended warranty is a responsible choice. You might buy it and think that you’re doing the quote, unquote “right thing” or the responsible thing. I bought an iPhone last year, it was very expensive, and I got AppleCare because at the moment when I was buying this thousand-dollar phone, I don’t want to have to pay to have the screen replaced if I crack it or if something goes wrong. But in your piece, you really lay out the argument for why these extended warranties are what you call a quote, unquote “terrible investment.” So tell me more. Why are they a terrible investment?LIAM: So the amount of money that you spend to get that protection is usually more than the protection that you’ll get back. I’m not going to do math out loud in public, but researchers have studied this, personal finance experts have looked into it. The likelihood that the product will fail during the extended warranty period is quite low. People overestimate the failure rate.So you end up paying these premiums for protection that, in all likelihood, you will not end up using. And even if you do use it, there are sometimes cases where you could have done the repair yourself for cheaper or hired a repair technician yourself for less than you ended up paying the coverage. And then, there’s other ancillary reasons why that type of insurance is maybe not worth getting in general.CHRISTINE: Why is this different than other types of insurance? Liam, I am sure that you are not going to recommend that I not have health insurance or someone might not have home insurance.LIAM: Would never do that.CHRISTINE: So what is the difference here?LIAM: Bad idea.CHRISTINE: Yeah, it is a bad idea. So what’s the difference between these forms of insurance?LIAM: So what economists and marketing professors and what personal finance experts will tell you is that insurance is a very important tool to protect yourself against financial catastrophe. So something really expensive, like cancer treatment or a house fire or even a car wreck, the cost of that if you don’t have insurance is very difficult to absorb. It’s in the tens of thousands, if not hundreds of thousands or more dollars. That’s very difficult for anyone to come up with that money without insurance.When a thousand-dollar dishwasher breaks, that’s very disappointing and it feels unfair and you are going to feel bad about that, but you can absorb it to some extent. It’s not going to tilt you into bankruptcy, and there are ways to replace that thousand-dollar dishwasher or repair it for, we’re talking, in the hundreds of dollars. Which I don’t want to make that seem like no big deal, but in the grand scheme of things when we’re talking about $300 repair or a $500 replacement dishwasher versus being on the hook for $50,000 in damages for a flooded basement, for example, it’s a completely different scale.CHRISTINE: Right. So basically, it’s an inconvenience with most consumer products if they break or need to be repaired. But as we talked about on this show back in January when we did a series on the LA wildfires, if you don’t have enough homeowner’s insurance, then you could be really in a financial crisis. Okay. So that makes sense to me.Reading your piece, I was really surprised by some of the statistics about how little some of these protection plans pay out to their policyholders when you compare it to something like homeowner’s insurance or health insurance. Can you walk us through the math?LIAM: When you look at the public financial statements for health insurance companies, for example, 90% of what they take in in premiums typically gets paid back out to cover medical costs. So they keep 10% to cover the cost of doing business. With home and auto, it’s usually something more like 65% or 70% gets paid back out to policyholders. With extended warranties, not all of them are publicly traded, but the ones that we did find, some of the bigger ones, the payout rate is about 25%, a little bit less than that.CHRISTINE: Wow. Wow.LIAM: Yeah. So they’re keeping 75% of the money that gets paid in, and not using that to cover repairs or replacements.CHRISTINE: So with health insurance, is that regulated?LIAM: So insurance is regulated on a state by state level. But my understanding is that most, if not all states set a minimum payout amount that health insurance companies are required to hit.CHRISTINE: And is that also the same with extended warranties? Is there regulation around that?LIAM: No, not in that way, no.CHRISTINE: Okay. Wow. So this kind of sounds like a big business for these warranty companies. Are they making a lot of money?LIAM: They’re bringing in a lot of money. So one of the ones I looked most closely at was Allstate. They do all kinds of insurance, and they own SquareTrade, which that was kind of the upstart extended warranty option that you could get online 10, 15 years ago, I think, at this point. They’re now owned by Allstate. You can look at their financials. The protection services subsegment of Allstate’s business has over 170 million policies in effect, and it brought in $2.8 billion in revenue in fiscal 2025.CHRISTINE: Wow. What about places like, you mentioned earlier Best Buy, what does that look like?LIAM: Yeah. So Best Buy, they have the Geek Squad and their membership plan. They don’t underwrite the insurance. They work with insurance companies to handle the financial side. But Best Buy does the heavy lifting of selling those policies, and that is valuable to the insurance companies. So Best Buy gets a commission on those sales. And when you look at their financials from 2025, I believe it was they earned $373 million from the sale of extended warranties, and when you look at their total profit, that accounts for about 40% of their net revenue last year.CHRISTINE: We’re going to take a quick break. Liam, when we’re back, we’ll talk about why people buy extended warranties even when the math doesn’t work out, and we’ll walk through some actionable steps that anyone listening should consider for their next big purchase. We’ll be right back.CHRISTINE: Welcome back. Liam, you have this really fascinating detail in your article about how product warranties have basically been around for thousands of years, that there were likely product warranties in Ancient Egypt. And intuitively, it’s understandable why someone would want a warranty for something that they have purchased, especially if it’s an expensive purchase. But if the math is so bad for extended warranties, why do so many people still buy them?LIAM: I think it hints at something in human nature. You want some assurances when you spend money. You want it to feel fair. There are some theories among researchers about exactly what drives the impulse to buy an extended warranty, to spend extra on this protection. The leading one and probably the most obvious is just risk aversion, loss aversion. The fear of the pain you will feel if this thing breaks sooner than you want it to hurts more than the pain of spending extra to protect it.CHRISTINE: Right. That makes sense. Okay. So loss aversion is definitely a reason why people are buying extended warranties. Are there other reasons?LIAM: Some other interesting papers have looked at alternatives. There’s one paper that came out last year called The Illusion of Victory. That one suggests that there is sort of a gambling impulse. People buy them because they think they’re going to win. It’s not so much that people are afraid of losing. It’s just there’s some people who think they know a good deal when they see one and they’re sure they’re going to win.There was a study from 2009, I think, The Times actually covered this when it came out, suggesting that people are more susceptible to offers to buy extended warranties after they’ve decided to buy the product. In that nice, buzzy moment when you’ve decided to treat yourself to a $1,200 TV or whatever it is, it usually has to be a fun purchase, people seem to be more susceptible to saying yes to one of these extended warranty offers.CHRISTINE: More so than something utilitarian, like a washing machine?LIAM: That’s what the data suggested, yeah. You’d have to imagine that many sales associates are coached to try to push these. So I think we’ve all fallen into this at some point, you just don’t even realize that you’re being sold something, and the pressure or the buzz or excitement, whatever it is, before you know it, you’re saying yes to something that was offered by a person who has a lot of practice getting people to say yes to things.CHRISTINE: So clearly, it’s a high-pressure situation when you’re buying something in person with a salesperson, but what about when you’re buying products online?LIAM: Yeah. So anyone who’s worked in web development or anything like that knows that you can test page designs and look for ways to get people on that page to do more of the thing that you want them to do, and there are a number of upstart embedded insurance companies that have popped up in the last five to 10 years. The value that they offer to retailers, as they put it on their own websites, is increasing conversion rates. It is getting more people to opt into these protection plans. Akko is one that I’ve heard of. Mulberry’s another one. They’re these digital-first companies. They don’t sell extended warranties in stores that I’m aware of, but when you go onto their websites and look at their pitch, it’s all about making it easier for e-commerce retailers to get high-performing protection plan widgets onto their website.CHRISTINE: Right. And so, there might be some pop-up at checkout like, “Do you want to add this extended warranty?” And you’re basically saying that there’s a lot of thought that goes into those pop-up windows or that checkout flow to try to get you to buy that extended warranty.LIAM: Yeah. One would have to assume.CHRISTINE: Yes, one would have to assume.LIAM: Yeah. I had a marketing role at a marketplace style website, a lot of thought goes into how to optimize that funnel, that flow. So they are giving you many opportunities to opt into this.CHRISTINE: You mentioned in your piece that extended warranties are handled a little differently in other countries. There’s more regulation around them. Can you talk a little bit about that?LIAM: Yeah. There are a few examples. So in the UK, any retailer selling and extended warranty has been required to post the price of the protection plan alongside the price of the product. Australia has a somewhat stricter rule. I think as of 2021, there is a mandatory four-day cooling off period. So the retailer cannot offer you the add-on insurance, the extended warranty, protection plan, whatever you want to call it, until four days after you’ve made the primary purchase.CHRISTINE: You said that in the beginning of this process, what got you interested in this was listening to a lot of finance podcasts. What are you supposed to do instead of get a warranty? Instead of buying an extended warranty, what should you be doing?LIAM: The nuts and bolts econ geek way of looking at it is you should self-insure. Instead of spending the money on extended warranty, which is a type of insurance, you should just hang onto that money, put it into a savings account or under a mattress, whatever you want to do, and when things need to be repaired or replaced, you just take money out of that savings and pay cash. And the stats suggest that if you do that, you’re going to come out ahead in the long run.CHRISTINE: Do you have any tips on how to get a warranty honored?LIAM: These are some tips I got from consumer advocacy journalists who have been helping people navigate similar situations for decades in some cases. You should try to do it the standard way at first. Go to the claims page, fill out the paperwork, do it that way. One advocate that I talked to, Christopher Elliott, told me, do that three times. Give them three chances to do it properly. Then you can start escalating matters.One of the people I talked to who had trouble with his extended warranty plan started calling the company’s customer service and asking to get it escalated. If you ever run into a barrier, just keep trying to escalate it. And there’s this now classic technique called the executive email carpet bomb, which was I think made popular on The Consumerist blog 20 years ago. It is not that hard to find the email addresses of people in executive suites at these companies. So if you can find those emails, and after you’ve done everything the right way, and you remain polite and document every step that you’ve taken, try finding those email addresses and getting in touch with them.CHRISTINE: So that’s basically like the internet version of, “I want to speak to your manager. Who’s in charge?”LIAM: Yeah. So it’s like a slightly less rude version of storming into the back office to talk to the manager, yeah.CHRISTINE: Okay. What about going in person?LIAM: It’s harder to be rude or dismissive to somebody’s face. I don’t know that this is always the case, but in general, you would think that if you can get a human to interact with you and maybe just physically swap out the product, it’s going to go more smoothly than shipping something in, hoping that it gets there.There’s someone I talked to who lived an hour from the service center that she was instructed to send her phone into for repairs. Somehow, it took a week to go 70 miles, and then the phone was just missing from the box when it arrived, and nobody really seemed to want to help. She said she would’ve been perfectly willing to just drive that hour to do it, knowing that she had handed it off to somebody. So I think it’s a psychological thing for people too, just knowing that their thing, it has never left their chain of custody by the time it gets to someone who can do something about it.CHRISTINE: Are there any scenarios where you think it is actually worth getting an extended warranty, even if somebody knows that they might lose money on it? Because I’m sure there are some people listening here who are saying, “Hey, I have a very good reason for getting an extended warranty.”LIAM: Yeah. I don’t have enough data to accurately predict when those edge cases are where it makes good financial or economic sense, but there are some maybe psychological reasons where you understand that you’re going to probably lose money on this deal, but it’s still worth it to you anyway. So there’s one writer who I spoke to who has written in defense of extended warranties in the past. He gave me the example that he is self-employed. His laptop is crucial to him being able to do work on a day-to-day basis, and it doesn’t make sense for a self-employed person to hire an IT department. So he views the extended warranty on his laptop as standing in for that. It’s going to be next-day service. He knows he’s paying more than he strictly needs to, but he needs to have that laptop working at all times. He cannot afford to have the downtime.CHRISTINE: So it’s almost like a business expense for him, and knowing he has a plan to get the laptop fixed if it breaks is worth the cost to him.LIAM: Right, right. Exactly.CHRISTINE: That makes a lot of sense. So you might need to just assess your own situation, know that in most cases, an extended warranty is going to be a money losing situation, but gauging when it really is worth it to you.LIAM: Yeah, right. And some people just don’t want to have to deal with the hassle of finding repair on their own, calling client repair technicians. To them, it’s worth it having somebody that they can pay to handle that, and that’s fine. Just my advice would be to go into it with open eyes, realizing that you’re probably going to lose money. You should be thinking about buying it for different reasons than financial safety.CHRISTINE: I’m going to skip our usual last question, which is what’s the last thing that you bought that you really love. I want to know what’s the last thing you bought an extended warranty on and why?LIAM: I bought an extended warranty on a refrigerator one time. I lived in a condo with a very weird shaped kitchen, and there was basically one fridge that we both wanted and fit. The reliability reviews for this fridge were not great, but we still wanted the fridge. And the store that we bought it from, well-regarded independent store, they have their own service team, so I knew that if something went wrong, they were sending their own people. That one, I bought extended warranty for. Given the risks of this particular model maybe not making it past five years, it felt like it was worth the few hundred dollars that it cost.CHRISTINE: Did you end up having to use the extended warranty?LIAM: No. Absolutely nothing went wrong.CHRISTINE: It has been great chatting with you about this. I cannot wait to bring you back on for your next big reporting project. And I’m now going to never buy AppleCare again for my phone. Thanks so much.LIAM: All right. Thanks, Christine.CHRISTINE: If you want to find out more about Wirecutter’s coverage, go to nytimes.com/wirecutter, and we’ll also link to Liam’s article in the show notes. That’s it for this week. Thanks for listening.The Wirecutter Show is executive produced by Rosie Guerin and produced by Abigail Keel. Engineering support from Maddy Masiello and Nick Pittman. Today’s episode was mixed by Catherine Anderson, original music by Dan Powell, Marion Lozano, Rowan Niemisto, Catherine Anderson, and Diane Wong. Cliff Levy is Wirecutter’s deputy publisher and general manager. Ben Fruman is Wirecutter’s editor-in-chief. I’m Christine Cyr Clisset. Thanks for listening.LIAM: Absolutely nothing went wrong, and then we moved. Maybe I should text the guy who lives there now, see if it still works.CHRISTINE: See if it’s still working.LIAM: It’s about 10 years old now, so…CHRISTINE: What a weird thing to get in a text message from the old owner of your building. That’s funny.
Source link