Myths vs. Truths – The Truth About Extended Warranties

15 Jun Myths vs. Truths – The Truth About Extended Warranties

– Exposing the false beliefs of the financial world

Myth: Extended warranties and service contracts save you maintenance costs over time.

Truth: Extended warranties and service contracts make the salesman a lot of money, and rarely pay off for you.

They are designed to play with your emotions and your sense of security so the seller makes more money. Statistically, these pay off for the finance or insurance company. That’s why they push them so hard. It’s estimated that 85% of extended warranties don’t pay off, meaning 85% of the time you bought the warranty but didn’t need it. Need a little salt in the wound? Depending on the type of product you buy, the profit margins for the salesman often top 70%! In many cases, the salesman makes more commission on the extended warranty than he does on the product itself.

So how do you survive without an extended warranty? If you follow the L.I.F.E. Ladder and have an emergency fund in place, you can replace the item for cash without blinking an eye. You are effectively self-insured without fattening the salesman’s wallet. Let’s visit that again. If you live debt free and have three to six months worth of your monthly expenses saved up in the bank for emergencies, what happens if the tv breaks? You get it fixed or buy a new tv. Simple as that. How cool is that? It’s not a great feeling to have to replace it and go through the hassle, but even if you have the extended warranty you still have to go through the hassle of getting it fixed or replaced. So with cash in the bank you can actually save some time and hassle (and paperwork) by having the funds available to take care of the issue up front.

When you live debt free you don’t need to worry about whether the fridge will last more than two years. And since you paid cash, you’re saving enough credit card interest that you could probably replace the item in two years anyway. There’s a tremendous peace of mind in buying an item without having to worry about whether you can afford to fix it when it breaks. Put the right things in place to self-insure your purchases. Don’t buy extended warranties. Period.

Matt Wegner is a personal finance, small business and leadership coach focused on teaching his clients the tools for L.I.F.E. (Living In Financial Excellence). Check out Matt’s money saving free resources today or visit
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