When to Pay for the Extended Warranty

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Generally speaking, extended warranties don’t pay off. Warranties are profit-makers because customers who buy them don’t—or can’t—ever use them. So when, if ever, is it worth paying an extra 10% or 20% on top of the product’s price for an extended service plan?

Personal finance blogger Len Penzo has some suggestions with his freshly created 12-Step Litmus Test. Here’s a snippet:

The gist is that there are a lot more reasons to not buy an extended warranty than there are reasons to buy one. As general rules suggested by Penzo, you should only really consider an extended warranty if the product is indispensable and/or difficult or prohibitively expensive to repair, and if the warranty costs less than 20% of the product’s total price.

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