I think one thing that’s helped is the amount of time we take before making a big purchase. Depending on what the item is, typically one of us will go ahead and scour the web, consumer reports, and friends to see what products have a good reputation in quality.

It’s not fool proof, but I think the time cost upfront researching helps keep costs down.

You’re on to something quite a bit deeper with this. We like to pay others then assume everything is covered, though the outcome is usually something different.

Obviously companies aren’t going to issue warranties if they’ll take a bath on them, so they set them up with sufficient exclusions that they’ll come out ahead.

Our trust in these arrangements tends to be of the blind nature, rooted in the fact that we don’t know what we don’t know, and assume all is under control.

Most of us are better at looking out for ourselves than paid strangers will ever be.

Outstanding post!
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so my advice? Take advantage of the manufacturer’s warranty, because most products if they’re going to fail do it within the first year or two. Like matt says though – don’t buy an extended warranty. Self-insure against risk of product failure.
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I suppose this concept would be highly personal, where each of us saves what we feel comfortable with. What’s most important is that we grasp the concept that our money is better spent earning us interest with the possibility of never being spent than it is in the pockets of others.

One thing to note, though, is that the price of the warranty isn’t (imo) the amount you should set aside. The companies get that value because of pooled risk… something you can’t take advantage of.

Assume: Product retails $1,000 and costs $900 to make, 100 people purchased the product with a warranty, 10 people need replacements (cost $900), 10 people need repairs costing $350 (valued at $450 if you had to do it on your own), 80 people don’t use it.

The expected value of this warranty is E(x)=probability of an event times the cost of an event…. E(x)=.1(900)+(.1)350+0(0)=$125.

So, the company can charge $125 per warranty and break even. Any amount above is pure profit. Let’s assume they charge $200.

Now Matt Jabs (being a savvy shopper) declines insurance and instead puts $200 in his bank account. However, you would have a 10% chance that the repair costs $450 and a 10% chance the replacement costs $1,000 (you would be paying retail, not cost like the mfg). Your expected value is $145, but is that a risk you are willing to take?

Just something to think about. Unless you buy A LOT of items that have warranties offered, hence pooling your own risk by having a warranty fund with 8 contributions, you should probably put in more than the warranty actually costs.

As a note: I don’t buy warranty funds unless on specific items. I think Consumer Reports usually recommends getting them on laptops (above a certain price) and LCD/plasma TVs.
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If the insurance companies weren’t making money off of us, they would not exist. Hence, they are usually getting the long end of the stick.

I never pay for an extended warranty. I try to make sure it breaks beforehand and fight like crazy to get it fixed and replaced!

I admit though warranties are great… saved my $800 Def Tech sub woofer this month, and my very expensive watch as well. But again I didn’t pay for an extension.

In fact, I just saved $2.1 million on lunch yesterday by switching the TV on. Huh?

FS
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