“Do you want an extended warranty with that?”
The short answer is no.
It might seem like a good idea when you just blew a stack of cash on a new phone or laptop. Add-on warranty providers know we’re attached to our gadgets. Who am I kidding? Breaking a phone is like losing a dear friend.
But here’s the cold reality: Most extended warranties like AppleCare, or those from Asurion and SquareTrade, for broken, lost or stolen electronics are a bad deal. And in some cases, they’re a downright rip-off.
Insurance makes sense on the big things in life, like your house or your health. The cost of fixing either can be astronomical. But the pain of repairing consumer electronics—even pricey ones like a laptop—is still relatively limited.
Extended gadget warranties are only worth it for niche cases, like people with an extremely advanced case of klutziness. Programs like AppleCare can also be helpful to those who need always-on-call phone tech support, beyond the great free service Apple offers.
Yet for most of us, here’s a better plan from Richard Thaler, a renowned economist at the University of Chicago Booth School of Business: “Every time someone offers to sell you insurance on a non-large purchase say no, and take that money and put it into a rainy-day account. With any luck, there will be plenty of money in that account the next time you drop your iPhone.”
Or, take the money and buy yourself a nice protective case.
An Apple spokesman says AppleCare programs deliver “exceptional value by giving our customers access to unmatched tech support wherever they need it, extending coverage for hardware repairs and protecting against the most common types of accidental damage.”
Apple says AppleCare not only extends customer warranties, it also provides more comprehensive service and support.
Behavioral economists like Prof. Thaler say add-on warranties only seem like a good idea because it’s hard to do the right mental accounting. When a purchase brings us joy, we naturally worry about the cost of a repair or replacement, research shows. But underwriters focus on a different stat: the likelihood that something will actually go wrong.
The warranty companies have those numbers, and make an art out of charging enough for their plans that they still make a killing. It’s hard for us to figure out the chances of an incident, but in general, gadgets are getting more reliable, not less.
A few data points nod to the risks. Smartphones that live in back pockets and sweaty palms are perhaps more vulnerable to accidental destruction than TVs and laptops. A repair firm called iCracked that offers a warranty program told me that 20% of customers with an iPhone 6 crack the screen within a year of buying. SquareTrade, another warranty firm, says a third of its mobile phone customers file a claim at some point. A good case would likely reduce your risk, but I’ve not seen any data on the subject.
Consumer Reports, which generally recommends avoiding extended warranties, says only 15% of buyers got a new phone because the old one broke, and only 2% because it was lost or stolen, based on a reader survey.
If you do crack your phone, many warranties don’t look like a great deal when you tally the cost of a fix. Any iPhone owner can walk into an Apple store or authorized repair center and have an iPhone 6 screen fixed for $109. You might have to wait, but there’s no extended warranty required.
With AppleCare+, even after you shell out $99 up front, Apple asks for an additional $79 deductible to fix broken screens. Your total out-of-pocket for a broken screen expense is $178—and you’re only allowed two accidents in the life of your phone. (AppleCare also covers a battery replacement without the deductible.)
If you don’t live near an Apple store—or you just like being self-reliant and have at least some experience tinkering with electronics—you could also just repair the broken screen yourself. I was able to replace the screen on a broken iPhone using a $110 kit from iCracked in about two hours. (Tech companies profit by making us think we can’t repair our own gadgets, but honestly, it’s just a bunch of tiny screws.)
Say something really bad happens to your phone, like it takes a swan dive into the loo. Worst-case scenario, the most Apple ever charges to repair an iPhone 6 is $299—again, without needing their insurance.
My family used to always buy AppleCare on more expensive purchases, like we did on a 2012 MacBook Pro with Retina display. It turned out to have a very troublesome battery we’ve had to fix twice, which requires replacing a lot of the internal components. Surely our $349 AppleCare policy was worth it?
Let’s do the math: The first battery failure occurred while it was still under standard warranty, so it would have been free. The second would have only cost $200 to repair. We’re still $150 in the hole. I’ll never make the mistake of buying AppleCare again.
Other warranty and insurance programs are even worse deals. AT&T and Verizon sell them through a company called Asurion, and bill you monthly. They have incredibly high deductibles—from $100 to $200—so you’re very likely to pay more for their warranty than you would just for repairs. Their rationale for higher costs is that the programs also cover theft or loss. But remember, the chances of that are quite low for most people.
Don’t forget, many of us already have essentially free coverage from credit cards or home insurance. American Express extends the original manufacturer’s warranty by one year if you paid for it with that card. My favorite program comes from Wells Fargo: They’ll cover up to $600 in damage or theft to your phone (minus a $25 deductible) if you pay your monthly wireless bill with their Visa card.
Another often-overlooked option: Instead of sticking a broken gadget in a drawer, you can still sell it. One site, Gazelle, will give you $150 for an iPhone 6 with a broken screen, money you can put toward an upgrade.
So, who might actually benefit from an add-on warranty?
The seriously accident-prone: If you’ve broken more than three screens previously, you seriously ought to consider investing in armored cases. Or you might weigh a warranty program.
Pick one that at least won’t cost you more than actual repairs. The iCracked service costs $7 a month, and the broken-screen deductible is $25—a total of $109 for fixing a year-old phone. And iCracked dispatches a technician to you to fix it right away. (They guarantee parts and labor, and say that botched installations happen only about 5% of the time.)
SquareTrade’s $99 two-year plan for iPhones and other smartphones comes with a little more flexibility. They permit up to four accidents, though you’ll still pay a $75 deductible each time. They’ll cover phones that have been totally submerged in water, and allow owners to choose from a range of repair shops, including Apple’s authorized ones.
Those needing extra help: Apple’s program does more than just service broken gadgets. It also comes with extra phone and online chat support after the first 90 days is up. Apple’s plan earns high satisfaction scores for service, and can be a godsend for people who need a helping hand with these increasingly complicated devices.
But keep in mind, If you live near an Apple store, you can drop in or make an appointment at its free-advice Genius Bar without paying for AppleCare. Paying for the program won’t even get you special access or ahead in that queue.
Time-sensitive people: If the prospect of being without your gadget for a bit is just unthinkable, a warranty program provides something else: peace of mind. Some of these warranty programs put the responsibility on somebody else to deal with it quickly.
Crack your iPhone on vacation? Both Apple and SquareTrade offer an express service where they’ll have a new (or refurbished) device shipped your way overnight. Then you send your broken one back to them.
Just know what you’re buying isn’t as much a warranty as it is a luxury.
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