Should You Purchase Extended Warranty?

You have just purchased a new printer like the one in the photo above. At the store where you made the purchase, the salesperson informed you that the product came with a 1-year warranty by the manufacturer. Then the salesperson asked whether you would like to purchase an extended warranty for the product. In the case of a printer, the extended warranty could bring the period covered up to 3 to 4 years. The extended warranty starts on the day the 1-year warranty period by the manufacturer ends. In some stores, the extended warranty is known as the product protection plan. You ponder for a moment as to whether to purchase this extended warranty for your printer.

The answer is a relatively straightforward no. The reason is simple. Buying an extended warranty for a product is like purchasing an insurance policy and paying a premium for it. Now that sounds like a sensible move to purchase the extended warranty. However unlike the insurance comparison, the price to pay for extended warranties far exceeds what could be considered a reasonable premium to pay for considering the chances of the product failing in that period.  The extended warranty is usually undertaken by the store itself. Proof of the high premium lies in the profits earned by stores due to sales of extended warranties.

However not purchasing extended warranty means that you are not covered when the manufacturer’s warranty period is over. Should the product that you purchase fails after the manufacturer’s warranty period, you have a few choices. If the product is still relatively new, you may want to send it back to the manufacturer or its agent for repair. The cost of repair by the manufacturer or its agent could be significant. If the product is not that new, you could send it to a repair shop. For computers and related devices, the place to go is probably Sim Lim Square.  Still it pays to shop around and compare prices among the shops at Sim Lim Square. However, the chances of your product failing within say 2 years after the manufacturer’s warranty period are relatively small. It is definitely worth taking the chance.

Another benefit of not purchasing extended warranty is your freedom to sell the product after a year or two. This could be due to your dissatisfaction with the product for whatever reason. Selling the product, say at Carousell, gives you the opportunity to recoup some amount that you could use to make your next purchase. You could argue that having a product with an extended warranty period still valid would not be a hindrance to its sale. Human beings are such that they would not sell the product and forgo the period the extended warranty paid for would still be valid. This is in spite of the fact that the amount spent on the extended warranty is essentially sunk cost.

Using the insurance premium analogy, it appears that there are situations when it pays to purchase an extended warranty. The situation is when the product has a higher than normal failure rate after the manufacturer’s warranty period. In such a situation, you would get your money’s worth when the product fails after the manufacturer’s warranty period and during the period of your extended warranty. Having said that, it would appear foolish to willingly purchase a knowingly unreliable product.

(Note: The author did not receive any payment or incentive from any company or organisation for their citation in this blog.)