Unfortunately, a disaster can be so great that it could substantially alter your life.
Warranties and insurances are no strangers to us. Every time we make a purchase, salespeople try to shove us extended warranties. Every time we change jobs, we look for the best medical insurance for our family and every time we get a car insurance bill, we have to question the premium hike yet again.
I wish more people would cover this topic. These possible expenses touches us on so many levels and making the wrong decision could literally transform our lives. I shouldn’t complain though. The only reason I even wrote this post was because recent events reminded me of its importance. Let me tell you share them with you (and how it taught me that even living in sunny Southern California can mean rainy days).
When It Rains, It Pours
It’s illogical how often bad events seem to happen in batches but it seems to occur quite a bit. During the past week:
- Emma’s Laptop Broke – Technically, only the power connector is acting up but without power, the whole laptop is useless. Just getting it looked at cost $70 so we might as well look for a new one.
- Website Crashed – If you had trouble leaving a comment or difficulty accessing the site the last few days, just imagine a self proclaimed technical genius scratching his head at a overload problem that does not go away simply by kicking the equipment. (Hopefully, it’s fixed now but the issue seems to be intermittent.)
- My Phone Broke – It seems like a software bug or something, but I cannot use the ear piece while speakerphone and headphones work. Update – after 2 days, it started working again, but I won’t be surprised if it malfunctions again.
Okay. Maybe not life threatening but you can appreciate how annoying and frustrating a rush of events can become. There’s a part of me that wished I paid for extended warranties or a premium for a managed hosting solution, but if given the chance, I would still decline.
Why (you may ask)? Because I can handle the worst case scenario.
The Only Factor I Look At
When I decide whether extended warranty or insurance is necessary, I only ask myself one question: What will happen if disaster strikes?
Logically, we know that companies offer insurance and extended warranty policies because they can make more money. Even though disasters can occur on any individual scenario, the premiums as a whole more than covers for the charges plus administration cost. Do I want to help pay for the salesperson’s commission? Not really.
As an individual, isolated incidents may create the illusion that the extra warranty policies make sense. In the long run though, the numbers are heavily stacked against it.
Now, there’s a big exception to this rule, and a very important one at that so read carefully. The only time when I welcome coverage is if I cannot handle the financial consequences of not being covered. Home insurance, for instance, is a must because losing your home due to a fire or flood can ruin your financial life. Car collision coverage for others is important too because the unfortunate event can significantly add financial burden to the possible emotional impact of injuring someone else. The premium paid for these two examples may end up being more wasteful than the extended warranty on a digital camera, but I’m going to get myself covered whenever I’m happy I never submitted a claim.
For me, it’s as simple as that. If your decision is more complex then that, then I suggest giving this idea some thought. Think of the worst case scenario and if you can handle the financial impact, say no to coverage. Otherwise, pony up some cash and let someone else worry about what might or might not happen.
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{ 12 comments… read them below or add one }
I just purchased Life Insurance for me & my family and it was not cheap. But I have two children that are not yet in college (I want them to go) so I took enough coverage out so my wife could pay off the house and send the girls to school if something were to happen to me.
Also noted is that the amount is enough to get out of debt with. So although it was expensive, the peace of mind it has created for me is more important.
Good for you. So many people think of insurance AFTER they need it which obviously doesn’t help.
You also bring up a good point. Sometimes, the psychological effects far outweigh the theoretical.
The reason why people never talk about insurance and warranties is because it never crosses our minds.
Subconsciously, I believe I already do what you suggest: get coverage when the consequences are too big to handle. I also increase my car insurance deductible because of this reason. It’s against the law to not be covered, but since it won’t materially affect my finances if I (god forbid) get into an accident, I choose to raise my minimum in order to save on some monthly insurance premiums.
I do this as well (have an ultra high deductible) and it’s because of the same reason. It’s worked out so far and even in the event that I have an accident, I probably have saved enough over the years to cover it.
I did the same thing. Get myself covered to a point where I can live with the consequences. With warranties though, I think most people are better off not buying them, but it’s sometimes hard to resist the sales pitches at the heat of the moment.
Good topic. Think about it this way. Insurance is a business, and exists for a reason. If they weren’t profitably making money off you (they win, you lose), they would go out of business.
Don’t bother paying for a vehicle extended warranty.
RB
It’s interesting that SO many people buy extended warranties even though not many people need them. For me, I rather find a car that’s reliable than to get one that I like but might be sub-par in reliability ratings.
Agree – if you can handle the consequences, do without the warranty.
When I was self-employed, I carried a $5000 deductible on my major medical health insurance policy. Made the insurance affordable in case something “big” happened, and I could cover the little stuff myself.
Think about appliance warranties… for 3 years of insurance, you are over halfway to owning a new appliance, and as the usual lifespan of a major appliance is 10-20 years minimum, you might as well just get a new appliance if the old one goes gunny-bag
More cost effective…. of course, used appliances are sometimes an even better deal than that, depending on where you get them.
Every time I get something and people try to sell me extended warranty, it goes something like this…
“You should get it because it’s a no-questions asked warranty. I’m not saying you should do this but some people seem to come back with a broken unit right before the warranty period expires. For some reason, they “accidentally” dropped it.”
When you buy extended warranty, you are usually covering for these scum bags as well as the sales person’s commissions.
Greg, Life Insuranse shouldn’t be that expensive. It really depends which type you buy? If you got TERM INSURANCE, you’re set. All financial planner (including myself) suggested that.
Insurance/Warranty is just a piece of mind. Nobody want to make that claim! If you don’t need it, you think u’re wasting $. But when you need it, and you don’t have it. Is TOO LATE! Make sure we all protect the most valuable asset we have. Which is OUR LIFE! Remember, we only get to live ONCE!
Frankly, with all the insurances, including home, personal, car, health and so on, I’m nearly getting suffocated now… It’s time for me to call it an end, as I don’t want to be binding with endless monthly payment anymore!
I agree, if you have enough money to handle the consequentces, no need warranty