Are Extended Warranties Worth It? The Break-Even Math for Appliances, Laptops and Phones

The offer usually comes at the register, when you have about ten seconds to decide. A few minutes of math beforehand can settle it.

Are extended warranties worth it?

An extended warranty is often worth less than it costs when your product already has warranty coverage and you could afford a repair. It may make more sense for an expensive item that would be hard to replace. Comparing the plan's price with likely repair costs shows which side you're on.

That answer isn't the same for everyone, because it depends on the product, the plan and how much a surprise bill would hurt. This guide gives you a way to work it out for a refrigerator, a laptop or a phone, plus the fine print to read first.

You'll likely face this choice often. Consumer Reports has reported that two-thirds of in-store electronics shoppers and nearly three-quarters of appliance buyers said a sales associate pitched one.

What you're actually buying

Start with the name, because it's a little misleading. A real warranty comes with the product and is included in its price. What's sold at checkout is usually a service contract, an optional agreement sold separately. The Federal Trade Commission says service contracts aren't warranties, even though many people call them extended warranties.

That difference matters for two reasons. The company behind a service contract isn't necessarily the manufacturer, so you're relying on whoever backs the contract to be around and pay claims. And the contract covers only what it lists. The FTC's advice is blunt: if it isn't listed in the contract, assume it's not covered.

Check what you already have

Before you can value a plan, you need to know what protection you'd have without it. Many buyers have more than they think.

The manufacturer's warranty. Read how long it lasts and what it covers. The FTC says a service contract that gives you no more coverage than the product's own warranty is not a good value. If a three-year plan starts on the purchase date and the product has a one-year warranty, you really get two added years.

Implied warranties. The FTC says laws in every state create implied warranties, which are basic promises that a product will do what it's supposed to do. They can last as long as four years in some states. They generally apply unless a product is sold "as is" where state law allows. Under federal law, a seller can't disclaim them on a product if it offers a written warranty or sells a service contract on it.

Problems you've already reported. If you report a defect during the warranty period and it isn't fixed properly, the FTC says the company must correct the problem, even if the warranty runs out first. So reporting a problem early and keeping a record of it can matter.

Your credit card. Many cards extend the manufacturer's warranty by a year or more on items you charge to them. Chase's description of one card's benefit shows how the fine print tends to work: it adds up to one extra year to eligible warranties of three years or less, and it doesn't cover cars, used items or items bought for resale. Card benefits vary and change, so check your own card's benefits guide. NerdWallet notes that cars and items without a manufacturer's warranty are generally excluded, and that you'll want to keep the receipt and warranty paperwork.

What the numbers show

Good public data on repairs is limited, and the best-known figures come from Consumer Reports. In a survey covering 36,919 laptops that members bought new from 2013 to 2018, 15% of PC owners with extra coverage used it for repairs, and so did 7% of Apple owners.

Costs told a similar story. PC owners' median out-of-pocket repair bill was $118, only $3 more than the median cost of coverage. Apple owners' median repair was $165, less than the $177 median for an AppleCare plan. In other words, a single repair often cost about what the plan did, and most owners with coverage never used it.

Consumer Reports has also pointed to Stanford research finding that buyers may overpay because they overestimate the chance a product will need repair. Its own advice is to decline in nearly every case, with smartphones as the main exception. The FTC is more measured. It says of car service contracts that you might pay more for one than you get back in benefits, and that setting money aside for repairs is one alternative.

Those are averages from one type of product, though. Your decision depends on your own numbers.

How to run the break-even math

You don't need a spreadsheet. You need four numbers: the plan's total price, any fee per claim, the likely repair cost and how many added years you really get.

1. Find the added coverage. Subtract the manufacturer's warranty from the plan's length. The FTC suggests working out the cost per year so you can compare plans.
2. Find the money a claim saves you. That's the likely repair cost minus any deductible or service fee.
3. Divide the price by that amount. The answer is the chance of a repair you'd need for the plan to break even, assuming one claim.
4. Ask if that chance seems realistic. Then ask if you could handle the bill if you turned out to be wrong.

Example 1: A $900 laptop. The plan costs $150 for three years. The manufacturer covers year one, so you get two added years, at $75 a year. Say a likely repair costs $250 with no deductible.

• Break-even chance: $150 ÷ $250 = 60%
• Using a 15% chance of a claim, the share of PC owners in that survey who used their coverage, the expected payout is 0.15 × $250 = $37.50

On those assumptions, you'd pay $150 for coverage with an expected value of $37.50. That $112.50 gap is what you'd pay to avoid the risk. Add a $50 service fee and the break-even chance rises to $150 ÷ $200 = 75%.

Example 2: An $1,800 refrigerator. The plan costs $240 for five years, and the manufacturer covers year one, so you get four added years, at $60 a year. A AAA magazine article citing Angi put the national average refrigerator repair at $650, and the same article said a fridge may last 10 to 15 years. Repair prices change, so a local quote is better if you can get one.

• Break-even chance with no fee: $240 ÷ $650 = about 37%
• With a $100 service fee: $240 ÷ $550 = about 44%

That's a closer call than the laptop, because the repair is bigger compared with the plan's price. A second repair during the plan would change the math again, but so would a limit on what the plan pays.

Example 3: A $1,000 phone. Phones are different because the common risk is damage, not a defect, and a warranty is generally a promise to fix defects. Say an accident plan costs $10 a month for two years, or $240, with a $30 fee to fix a screen. Without the plan, a new screen costs $300.

• Saved on one screen: $300 − $30 = $270
• Break-even chance: $240 ÷ $270 = about 89%

For one cracked screen, you'd barely break even. But if the plan covers a full replacement for a $100 fee, a destroyed phone saves you $900, and the break-even chance falls to about 27%. People who have broken phones before may reasonably see that risk differently than people who never have.

When a plan may be easier to justify

The math above treats you as if you could absorb a bad outcome. Not everyone can, and that's a real consideration. A service contract is a bit like insurance: you may lose money on average in exchange for avoiding a bill that would really hurt.

A plan may be easier to justify when a repair would be hard to pay for, when you use the product daily and can't wait, when it covers accidents you think are likely, or when the price is small compared with the cost of replacing the item.

If you're leaning the other way, consider the FTC's alternative of putting money aside. A sinking fund for repairs works here. Skip five $150 plans over several years and you'd have $750 available for any product, whether or not it ever breaks. You'd also keep whatever you don't use.

The fine print to read first

If a plan still looks good, ask to see the actual contract before you pay. The FTC suggests checking these points:

• Who backs it? Find out how long the company has been in business, and look for reviews and complaints.
• What are the hidden costs? Look for deductibles, fees per service, shipping to a repair center, transfer fees and reimbursement limits.
• Is accidental damage covered? Many buyers assume it is.
• Can a claim be denied? Check whether skipping routine maintenance gives the company a reason to refuse.
• How do claims work? Ask who does the repairs, whether the item must go back to the store, and how long it takes. A slow claim is worth less.
• Does it repair or replace? Find out what happens if a repair isn't possible.

Two more questions are worth asking the seller: can you cancel and get a refund, and can you buy the plan later instead of today? That second answer can take the pressure off the checkout decision.

Car service contracts are a bigger decision

Vehicle plans cost much more. The FTC says they can range from several hundred dollars to several thousand. The cost depends on whether the car is new or used, its make and model, the coverage and the length of the contract. They're sold by manufacturers, dealers and independent companies, and the administrator usually decides your claims.

Compare the dates with your factory warranty so you don't pay twice for the same years. Check who covers towing, rental cars and labor, whether you must use certain repair shops, and whether the contract transfers if you sell the car. If you're buying used, this belongs on the same list as the rest of the used-car process.

You also don't need a dealer to keep a warranty valid. The FTC says it's illegal for a dealer to deny warranty coverage because someone else did routine maintenance, and that aftermarket parts alone don't void it. Keep your service records.

Watch for warranty scams

Mailers, calls and texts warning that your warranty is about to expire are a common scam. The FTC says these marketers probably have nothing to do with your dealer or manufacturer. Watch for phrases like "Final Warranty Notice" or "Notice of Interruption." They may push you for financial information and a down payment, and the company may not be around when you need it.

If a company won't honor a plan, the FTC suggests going to the seller first and then the manufacturer or contract company. If that fails, you can report it to your state attorney general and at ReportFraud.ftc.gov. If you paid by card and were charged for something you didn't get, our guide to disputing a credit card charge walks through that process.