Somebody’s trying to make me out to be a liar…and it’s because there’s lots of money in it.
I want to tell you a little story. One of my staffers was recently making a purchase in an electronics store and being worked over by the salesperson to buy an extended warranty. The staffer didn’t identify themselves to the salesperson or say that they worked for me. But when they continued declining the extended warranty pitch and said, “Clark Howard doesn’t recommend it,” the salesperson said they could prove that I buy extended warranties.
What happened next blows my mind. The salesperson went over to their point-of-sale computer terminal and pulled up a fake invoice with my name on it, a fake address on it and a bogus record of purchase where I supposedly bought a 3-year extended warranty on an electronics item that I don’t own.
I was incensed when I heard this. But it’s nothing new, really. This also happened to my wife in an electronics store too. Of course, she knew right away that it was not our address and not our TV. Unfortunately, however, your average consumer wouldn’t know that.
Let me say it again: I don’t buy piece of junk extended warranties. I find it so upsetting that retailers are so desperate to sell you this junk that they’d make up fake invoices for appliances I don’t have with extended warranties that I would not buy.
Why am I so vehement about this? Because the math on extended warranties works against you. Yes, there’s an occasional time something will die outside of the traditional manufacturer’s warranty period and an extended warranty may help you out. But you’re really betting against the house in most cases.
Consumer Reports now has found that on average what you pay for a warranty is equivalent to what a repair would have cost otherwise if you had to pay for the repair. So you need to know this is all about the retailer banking huge money. In fact, profit margins on extended warranties are off the charts for retailers at 80% or higher.
But wait, it gets worse. Many times the company that writes the extended warranty you buy will turn out not to be good anyway. When you make claim, they don’t want to pay. So you paid all that money for false assurance. Or worse, the extended warranty company goes out of business and the retailer says, “Not our problem.”