From: rjn@FC.HP.COM (Bob Niland)
Newsgroups: rec.audio,rec.video,misc.consumers
Subject: Re: Extended Warranties
Date: 7 Oct 92 17:23:12 GMT
Article-I.D.: fc.BvrHMo.341
Reply-To: rjn@FC.HP.COM
Distribution: usa
Organization: Hewlett-Packard/WSY Ft.Collins,CO,USA
X-Newsreader: TIN [version 1.1.3 PL6]

Becoming an FAQ...

My first test on extended warranties (EW) for consumer products is:

  * Is it less than 4% of purchase price per year?  Use the "future value"
    of the payment(s), at a reasonable interest rate, to compute the
    percentage.  4% is approximately what HP charges for return-to-HP
    service on our computer products (and the HP charge is periodic -not
    lump sum- and doesn't start until the warranty expires).

Almost all EWs on consumer products exceed 4% by a substantial amount.
Furthermore, since you often pay a lump sum up front, the seller is getting
the use of your money, plus a free ride for during the manufacturer's
warranty period (which is when the bulk of the failures occur anyway).

If the contract passes this test, then check into:

 * Actual legal terms & conditions - many EWs are only described in brief
   flyers, and the retailer often cannot provide the full terms of what you
   are agreeing to (which may differ from what you are being told verbally,
   and may even differ from the flyer).

 * Who underwrites the contract?  Will they be around in 3 years?

 * Who services the product?  Are they factory-trained and authorized?

 * Is the contract for "repair or replace (or better yet refund)"?  If so,
   what constitutes a "replacement" - and can you veto it?  If refund, is it
   for original, residual, pro-rated or replacement value?  Who determines
   it?

 * What is your recourse in cases of extreme repair delays, or "repairs"
   that aren't or damage your equipment even further.

 * What does the retailer have to do to "register" your EW?  How can you
   confirm that this step actually happens?

Generally, based on typical EW prices, if you were to invest the contract-
equivalent amount of money on each product purchase, you would shortly have
about ten times what you need to replace a product by the time the first one
fails.

Consumer EWs are primarily a way for retailers and their salespeople to
generate extra profits and commissions, respectively.  They rely on the the
following:

  - consumer electronics has a very low failure rate;

  - if it fails, it will probably fail on the manufacturer's dime;

  - if it fails later, you will probably have forgotten the EW;

  - if you remember, you won't be able to locate the paperwork;

  - if you find the papers, you won't be able to locate the provider;

  - if you locate the provider, they will hassle you until you give up;

  - if you don't give up, they will either fix your device beyond repair, or

  - insist on replacing it with something that may or may not be "equivalent"
    but surely will be lots cheaper than today's models.

As in most things, beware of anecdotal evidence.  You will hear from a few
vocal people who "got their money's worth" on an EW.  You are far less
likely to hear others admit that:

 a. They got taken (had the device fail and got no satisfaction for one
    or more of the above reasons).

 b. They probably got taken ("well, it hasn't failed yet" -or- "I sold it/
    traded-in/gave it away before the EW expired")

Regards,                                              Hewlett-Packard
Bob Niland      Internet: rjn@FC.HP.COM               3404 East Harmony Road
                UUCP: [hplabs|hpfcse]!hpfcrjn!rjn     Ft Collins CO 80525-9599

This article represents only the opinion[s] of its author, and is not an
official or unofficial position of, or statement by, the Hewlett-Packard
Company.  The text is provided for informational purposes only.  It is
supplied without warranty of any kind.