As I mentioned before we recently purchased a Microsoft Band and, in what has become a routine exchange at most consumer electronics stores, the friendly staff asked us if we wanted to purchase an extended warranty/insurance?

To my memory extended warranties have always been offered, but in times past it appeared to be limited to really big ticket items, now it appears that we are being offered warranties on all kinds of items, sometimes the items cost as little as $30!

So the question is "should you purchase a supplemental consumer electronics warranty?" Of course, the answer is, "that depends".

My default answer in almost all cases is no. I rely on and meticulously research manufacturer warranties first, seriously we all should be reading those things, some of them are horrendous and actually require you to jump through unjustifiable hoops in order for them to fulfill their promise. However most of them are reasonable and last up to, and sometimes beyond, a year.

So, I want to break down what you should be asking in order to determine what you are paying for.

Be sure to ask about the manufacturer's warranty

Manufacturer warranties generally last between 90 days and a year, which means the warranty you are passing out additional money for generally will overlap, or better yet, extend the existing one. In effect that means if you purchase a "two year warranty", you may actually be paying for two warranties for at least the first year or so, trust me the cost of replacements has already been folded into the product you are purchasing.

Before you elect to purchase a warranty find out what you get from the manufacturer without it.

Do you need or just want this item?

This question is incredibly personal, but I would posit that in most instances our consumer electronic devices are purely recreational and serve almost no critical purpose. I could possible make an exception for a smartphone that has turned into the most personal of computing devices, and travels with us everywhere. As a result it is the device you use the most and are more likely to break in the most unexpected circumstances.

Can you really say that about your TV? Or your Xbox? Probably not.

Read the fine print and do the math

The details of your warranty are really important, you have to know under what circumstances you are eligible for a replacement or even a repair. What scenarios invalidate your warranty? Do you get a new device or one that has been opened/repaired?

For example Verizon has a repair/replacement warranty program that cost $12 a month, the replacement device is not brand new. So let's assume for a moment that I keep the phone for 2 years, that is grand total of $288. That my friends, even for an iPhone is astronomical. In the case of Apple products I am actually an advocate of the Apple Care +, for $99 you get a 2 year repair/replacement warranty with what I would describe as reasonable limitations.

Alternative strategies

Whenever you hand over money for a warranty you are asking someone else to gamble with your money. Notice that no store offers to reduce the purchase price by that warranty amount to insure that you do not come back for a replacement within the normal 2-4 week window, that would allow you to gamble with their money. It will never happen.

If you are genuinely concerned about replacing your devices, my solution is to maintain an escrow which you control, this can help cover the absorbent costs of replacement. Essentially for every device you purchase you would put aside approximately 15% of the total cost (more if you are accident prone). This requires discipline obviously (and some inherent monetary privilege) but it means you are not handing over more money for someone else to play games of chance with.

What is your solution? Is the escrow idea even feasible?

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