Extended Warranties for Your Gadgets: Are They Worth the Money?

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Holiday shopping season is in full swing, and smartphones, tablets, and other electronic devices once again top many shoppers' gift lists. Given how expensive many popular gadgets have become, one big question many shoppers are facing is whether or not to tack on an extended warranty to protect themselves should their electronic devices come to harm.

They're Lining Up to Sell You Protection

Retailers know that the best time to get you to pay to protect expensive items is while you are making a big-ticket purchase. For years, Best Buy (BBY), Sears (SHLD), Walmart (WMT), and other major retailers have sold extended warranty protection on high-priced electronics like computers and TVs. That coverage can be pricey, with Walmart having recently charged $65 for a two-year TV service plan and Best Buy offering two-year coverage on an $800 TV for $99.99 and five-year coverage for $179.99 . Appliance warranties can also be expensive, with Sears recently charging $280 for a three-year protection plan on a $950 refrigerator.

Protection plans for smartphones and tablets are also popular. Apple (AAPL) offers its AppleCare for its devices. Coverage to extend an iPhone's warranty and other protections for two years will run you $99. Other companies have sought to offer more comprehensive coverage for electronic devices, with Protect Your Bubble offering phone and tablet insurance for $7.99 to $9.99 a month that covers not only mechanical problems but also common mishaps like damage from drops and liquid spills, as well as theft or loss.

Many Items Have Built-In Protection

What many consumers don't realize is how much protection against common problems they already have, even without buying extra. Nearly every purchase comes with at least limited warranty protection for mechanical defects. According to Consumer Reports, most issues that would qualify for coverage under extended warranties tend to happen during the initial warranty period, making the extended coverage essentially worthless.

Moreover, many customers who use credit cards to purchase items get the benefit of extended coverage from the companies behind their plastic. For instance, MasterCard (MA) automatically doubles whatever manufacturer warranty a product offers, and provides 90-day insurance coverage even against theft or accidental damage on many purchases. Visa (V) offers similar coverage on certain types of cards it offers.

On the other hand, even high-priced protection won't cover every loss. Some liquid-damage coverage won't cover you if you drop your smartphone in a swimming pool, for instance. Moreover, with certain policies, if a loss happens right after you sign up for coverage, you'll find that the protection doesn't begin until after an initial period.

The other key thing to consider with gadget insurance is the fact that if a loss occurs, you might end up having to foot a big part of the bill.

For instance, Protect Your Bubble charges deductibles of $75 for basic mobile phones, tablets, and laptops under $1,000, with that deductible rising to $100 for items above $1,000. Apple iPhones get a higher deductible of $120. When you factor in monthly insurance premiums, that means you could end up spending $300 or more if you actually need to make a claim -- $300 that could otherwise have gone a long way toward replacing a device even in the unlikely event of loss. Similarly, Apple charges a $79 service fee for accidental-damage repairs on top of the initial cost of coverage.

Be a Smart Shopper

Protecting yourself against bad luck might seem like a smart move with a pricey electronic gadget. But for most people, gadget insurance will end up being a money-waster far more often than it proves to be a money-saver.

Motley Fool contributor Dan Caplinger owns shares of Apple. You can follow him on Twitter @DanCaplinger or on Google+. Dan owns shares of Apple. The Motley Fool recommends Apple, MasterCard, and Visa. The Motley Fool owns shares of Apple, MasterCard, and Visa.

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4 Comments

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jcblondie76

Sure manufactures cover against their own defect, but they won't cover wear and tear and accidental. I always buy the Geek Squad protection at Best Buy on any portable electronic and on my TV's and have found that they have saved me hundreds! My cousin dropped my Kindle...covered. Drop my camera, covered. Pixels going out on the LED TV...covered. Do I need it on a Blu-ray player or speakers, no. But on large items and small portable items, absolutely!

December 16 2013 at 7:49 PM Report abuse rate up rate down Reply
jillsturman

I had previously owned Appliances that only had 1 year warranty on them after the year they all had problems it cost $3000.00 for 3 years extended warranty with General Electric, I have now bought extended warranty on Refrigerator $50.00 extra 5 years and $200.00 extra 4 years washer and dryer cheaper and better to not take a chance.

December 16 2013 at 5:53 PM Report abuse rate up rate down Reply
hh677

A while back I had a Kenmore refrigerator that was over 5 years out of warranty break down in the middle of the summer. I called Sears to schedule a repairman, and was told they could have someone to my house in 10 days. I asked if the wait would have been less if I had a service plan, and was told that it would not have been. I then called a local appliance repairman that I found in the yellow pages. He came the next morning, fixed the problem promptly, and charged us $169 - far less than an extended warranty for 5 years would have cost. I always knew that extended warranties usually are not a good deal financially, but had never considered the ramifications of being limited to a particular repair servce. Two reasons to avoid them.

December 16 2013 at 2:13 PM Report abuse rate up rate down Reply
sptt144

If it's cheap enough and long enough....buy it!!!

December 16 2013 at 2:26 AM Report abuse rate up rate down Reply
Ted hunter

Great Read! I always check http://blaketablets.com/ for the latest tablet reviews, they really helped me decide which one to buy.

December 15 2013 at 12:22 AM Report abuse -3 rate up rate down Reply
lorepod

It seems that anything mechanical or electronic that you buy for over $15, you get a service plan shoved in your face. It is a huge moneymaker for the stores. Save your money and if it breaks, throw it in the trash and get another. You'll still be money ahead.

December 13 2013 at 2:11 PM Report abuse +5 rate up rate down Reply