Smith 
I recently bought a new Nissan Murano and got the hard sell in the dealer’s workplace to buy the warranty plan that is extended. In spite of selling me on what great and dependable the car was only minutes before, the finance manager kicked the “you never know what could happen” argument into the discussion on the guarantee that is extended. What is an extended warranty. I chose not to buy the guarantee that is extended. Let’s look at the specifics.
The fundamental Murano warranty is/ that is 3-year miles. The dealer wanted to sell me an extra 3-years and 36,000 miles for approximately $1,750. I was told this was “only” $250 more than their actual “cost” and was the deal that is exact same received.
Under the warranty that is current I’m covered for three years. So, right off the bat, we’m having to pay for a service at least three years in the future today. For three years Nissan would have use of my funds to invest nevertheless they please. This is deal that is fantastic Nissan. If you doubt the value of float, take a read through Warren Buffett’s latest Chairmen’s Letter. Or simply look at his current Net Worth.
The argument that is main heard was i really could need a brand new air conditioner or something similar and that could cost $3,000! Let’s just say for argument that this replacement would take place four years from the date of purchase. Assuming I had kept the $1,750 and earned 5% in a CD over the following four years, I would have approximately $2,125.
I believe the way that is correct evaluate these warranties is looking at expected value, or in this case, expected expense. By looking at the situations that are different different costs associated with both we can easily determine expected cost. In this situation, under the warranty my repair cost would be zero along with no warranty that is extended my cost would be $3,000. That implies the breakeven possibility of repair for me is just over 70%. (($3,000 * 70%) + ($0 * 30%) = $2,100)). I will need this costly a repair, I’m better off passing on the warranty unless I believe there is certainly a greater than 70% chance.
I do not think the likelihood of needing that type of fix is so high, so I decided to keep my money. I did, nevertheless, transfer the $1,750 I would personally have spent on the extended warranty to a separate account for car repairs just to see how We actually turned out on this decision that is singular.
Extended warranties and protection plans are pushed on consumers constantly, from electronics purchases to cell phones. As a guideline that is general I never buy the warranty because I feel I’m always overpaying for the actual probability of the need to use the warranty. Consider, why do the warranties are pushed by the sales people so difficult? Salespeople push them because they are extremely profitable for companies.
On a singular purchase, you can win or lose with a specific warranty, but general I believe you’ll invest less money as they arise if you universally turn down extended warranties and pay for the difficulties you actually have. Add up all the warranties you bought or could have bought for TVs, refrigerators, washers/dryers, cars, computers, etc, etc. That can be a amount that is substantial of.
After composing this piece, I came up with a policy that is new my own finances. Everytime I buy something where I am offered an warranty that is extended i am going to turn it down, then get home and transfer the cost of this warranty into a separate “warranty” account. I shall then use that account to pay for repairs or replacements of the purchased items. I’m highly confident that account shall grow with time.