Should You Buy an extended warranty?
In short, no. Almost all extended warranties involving computers (and most all other merchandise) are a waste of money. Most consumers purchase them for piece of mind. The feeling that they have a fall-back in case something goes wrong. In fact, the problem is that in most instances, nothing will go wrong, at least within the warranty period. If something does go wrong, you will have to jump through hoops to get your warranty honored, if you ever do.
Top reasons for not getting an extended warranty.
It's not worth the cost
Most repairs that you may encounter within a warranty period are actually cheaper to pay out of pocket than the cost of the warranty. Example, you pay $200-250 for an extended warranty. Your DVD Writer goes bad, it only costs $40-50 for a new one. Even a high labor cost would put the total cost well under the $250 for an extended warranty. Prices and manufacturing have become so streamlined that most computers will outlive the warranty period. Industry sources put the profit margin on consumer electronics extended warranties at between 40 percent and 80 percent. The November 2004 issue of Warranty Week reported that Dell's revenue from extended warranty sales was actually overtaking its spending on warranty claims, and Gateway increased its warranty revenue to $33 million while decreasing its warranty costs to $15 million. Keep in mind that this was 7 years ago. That profit has only grown with the explosion of electronics in our society. There is a solid reason why profits have sky-rocketed, most consumer electronics simply don't go bad, at least within a the initial warranty period.
Unreliable warranty work
The first thing to understand about buying an extended warranty is that, should something go wrong, the company holding the warranty, not the consumer, will determine who does the repair. More often than not, they will use a subcontractor that you wouldn't have picked unless they working on your enemies computer. If you are unhappy with the work, you are out-of-luck, you are at the mercy of the company holding the warranty.
The Warranty Underwriter may go out of business
Quite simply, if this happens, you are out of luck with no refund. If you do buy one, find out who is actually responsible for the work that may be done. You will find that most of the time it is not the store that you purchased the computer from.
The Warranty does not cover what you think it does
This is our fault because nobody reads the fine print of the warranty. The store is counting on that, because they intentionally will eliminate many of the most common problems that will occur. Is it unethical and unfair, of course, but they have it in writing and since you didn't bother to read it before paying, you are out of luck.
The warranty typically overlaps the manufacturer's warranty
People get irate when they find this out, because it becomes obvious to them at that time that they were scammed. One big box retailer (BB are the initials), sells a two year extended warranty. Sounds great until you realize that the warranty starts with the date of purchase. Since you already have a manufacturer's warranty, the first year of that extended warranty is worthless. How do you know? Well, if you take the computer in during that period to use the warranty, they will inform you that it is still covered by the manufacturer and by policy of the warranty, you must go through them first. So, yes that two year warranty is actually a one year warranty, you just paid a two year price.
Legally, it's not even a warranty
Technically, it's a service contract under law. Warranties are only provided by the company that manufactures the product. As mentioned previous, if the company providing the service contract goes belly up, you are out of luck.
Paying with a Credit Card may extend the warranty
Check with your credit card provider, many will automatically extend the manufacturer's warranty for up to a year or two simply for buying the computer with their card.
Is there an exception?
Yes, sometimes getting a extended warranty for laptops may be justified, but please read the warranty carefully, almost all extended warranties do not cover accidental damage, so if you drop it, close the lid with something inside (ie. a pencil), thus cracking the screen, those damages are typically not covered. Laptops do have a higher failure rate than computers, but I still contend that they are not needed even for them. To be fair, it is not out of the question to consider them for laptops, just please read the fine print. MoneyCrashers.com has a nice perspective on warranties, read here.