Home Depot’s best-selling front-loading Whirlpool washing machine runs $699; purchase it online, and the retailer urges adding a “Protection Plan” — a three-year extended warranty — for an extra $100. Buy a Samsung TV from BestBuy.com for $329, and at checkout the website recommends you “Protect your TV” with a $59.99 two-year plan from Geek Squad, or a five-year one for $69.99.
Shop for a phone, TV, computer, tablet, sofa, appliance, vacuum, grill, or dozens of other products and you’ll likely be urged to shell out for one of these plans.
Retailers prey on our “loss-aversion” tendencies to sell these policies. Most consumers worry more about having a product break or fail than they do about the cost of a replacement or repairs. For some reason, losing $100 feels far more painful than spending $100. So stores offer a way to alleviate that anxiety by selling mini-insurance policies. These “peace of mind” plans are enormously profitable for the companies that sell them, but they’re usually terrible deals for consumers.
Big profits for companies, little value for consumers
The easiest way to determine whether protection plans provide value to consumers is to compare the amount of money paid for these policies against the costs incurred by the warranty companies to settle repair claims.
Many analysts estimate that less than 20 cents of every dollar spent on extended warranties gets paid out in claims. Unfortunately, companies that sell these plans usually don’t disclose how much money they make from them. Among large retailers, only Lowe’s provides insight. In its 2024 annual report, it disclosed $1.268 billion in deferred revenue from protection-plan sales, with $561 million of that revenue converted as “recognized as sales.” Compare those earnings against the $210 million it paid in claims, and that means Lowe’s paid out only about 16.6 percent of what it took in to fix or replace items for customers who bought protection plans. Their total profit from extended warranties? More than 60 percent.
In 2022, Apple stopped providing details on AppleCare revenue and costs. But during the 2021 fiscal year, the operator of the world’s largest extended warranty program earned an estimated $8.5 billion from selling optional warranties, according to Warranty Week newsletter. That’s a small percentage of Apple’s overall revenue, but its earnings from AppleCare were more than enough to pay for all warranty claims, including those made by customers for recently purchased devices under Apple’s standard manufacturer warranty.
It’s expensive insurance
Extended warranties are insurance policies. And while you should buy insurance to protect against risks that could be financially catastrophic — house fires, liability claims, auto accidents, medical care — you shouldn’t bother covering the risk of paying for repairs or replacing most items that you buy.
Yes, it would be painful to replace, say, an $800 iPhone. But for most consumers, what AppleCare offers is overpriced. For example, a base-model iPhone 17 costs $799. For no extra cost you get a one-year limited manufacturer’s warranty covering repairs and 90 days of tech support. Add AppleCare+ for $11.99/month or $119.99/year, and you’ll get an extended warranty against breakdowns, plus coverage for accidental damage, theft or a lost phone.
The problem? Even after those premiums, you’ll pay extra if you run into trouble. Cracked screen? AppleCare+ has a $29 deductible to fix it; you’ll pay a $99 deductible if your clumsiness or a product defect necessitates a different type of repair. If you lose your phone or it’s stolen, the deductible is $149 per occurrence, and you’re limited to two losses per year.
So, if you’ve insured your $799 phone with AppleCare+ and then your phone is damaged beyond an easily repaired cracked screen, you’ll spend $219 (annual premium plus deductible) or $243 (monthly premium plus deductible) in just one year. Phone lost or stolen? You’ll pay even more — $269 or $293 in just one year — for both the premium and the deductible. Those are significant out-of-pocket expenses, even for a $799 phone.
Even if you need a repair, its costs are often comparable to the price of the protection plan. Most retailers charge $100 for three-year extended warranties for major appliances. The odds of a breakdown in the first three years are low, and the average repair cost of washers, dryers, refrigerators, etc., is less than $200 a visit. Why purchase a pricey insurance policy to cover an affordable repair?
You can find similar protections free
Many credit cards automatically provide free extended warranties when you use them to pay for products with manufacturer’s warranties (although vehicles and boats are usually excluded).
For example, Citi’s Platinum Select Card will add a 24-month plan to any manufacturer’s warranty to cover repairs or to replace an item if it can’t be fixed. Reimbursements are capped at $10,000 per item. The American Express Gold Card offers a nearly identical perk, although its repair-or-replace provision lasts just a year beyond any original warranty.
If you go to Costco to snag a TV, computer, appliance or another product backed by a manufacturer’s warranty, you automatically get a free one- or two-year extended warranty.
The fact that these companies offer free warranty extensions is further indication that the policies sold by retailers aren’t worth much.
Still want a warranty extension? Wait to buy it.
If you can’t get a free warranty extension, you can usually add coverage up to 60 days after buying the product. Some stores allow you to buy coverage until just before the manufacturer’s warranty expires. So take time to think it over — and to see whether the product you bought is prone to problems.
If you’re set on an extended warranty, you don’t have to buy the store’s plan. Many companies sell warranties for products purchased elsewhere, so shop for the best price for the product, then look separately for the best warranty deal.
Allstate’s SquareTrade — the largest seller of stand-alone plans — provides coverage for most electronics and phones, and it’s usually cheaper than what retailers offer.
Check what you get
We waded through the small print for several extended warranty plans and found most do offer decent coverage. (Basically, they promise to pay to repair breakdowns that would also be covered by the original manufacturer’s warranty.) But before you buy, check for excluded problems and what happens if something can’t be fixed. Some plans promise to replace a product if it can’t be repaired or requires more than four repairs, but the replacement may be a refurbished or rebuilt unit.
Beware that most extended warranty plans require an original store receipt to file a claim. And some require proof that you still own the product.
How long does it really last?
Many stores advertise the total length of time you’ll have coverage, including the manufacturer’s warranty. If the product warranty lasts two years, and the store is offering a one-year extension, it might sell it as “three years of coverage.” That means you could pay $100 or more to extend warranty coverage for just a year.
Is there a deductible?
As we’ve mentioned, if you buy AppleCare and need a repair or replacement, you’ll still have to pay a deductible for fixes or a new device. Do the math and you’ll often find your potential out-of-pocket cost for “free” repairs makes buying coverage less sensible.
Does the contract cover in-home service?
You probably won’t want to lug your 75-inch TV across town or ship it. Service contracts for major appliances (refrigerators, washers and dryers, etc.) do cover in-home repairs. How you get repairs for TVs, computers and electronics varies depending on the warranty seller.
Which repair companies can you use?
Even if the warranty pays for repairs, you don’t want to deal with a lousy shop. Unfortunately, many retailers’ warranties lock you in to using the seller’s own shop or a designated facility. That’s frequently bad news. For example, Best Buy’s computer repair services get some of Checkbook’s lowest ratings. Ditto “authorized” repair centers for major appliance brands. Having repairs done by these services might be a hassle — and could still result in a malfunctioning product. Independent shops tend to score much higher.
Kevin Brasler is executive editor of Washington Consumers’ Checkbook and Checkbook.org, a nonprofit organization with a mission to help consumers get the best service and lowest prices. It is supported by consumers and takes no money from the service providers it evaluates. You can access Checkbook’s ratings and advice free until June 10 at Checkbook.org/WashingtonPost/warranties.
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