Extended Warranty ??

[OldShooter]

To whack the dead horse one more time:

When the subject is extended warranty, the seller holds the trump cards.

First, where the buyer has anecdotes, the seller has data. That data gives him an accurate statistical estimate of his risk for this particular car. To that risk estimate he adds a generous sales commission and as much profit has he thinks he can get away with. So, to win, the buyer will have to experience costs that exceed his statistical risk by a fairly large amount. Probably close to double. Dirty Harry's famous line applies: "...you've got to ask yourself one question: 'Do I feel lucky?' Well, do you, punk?"

Second, while the bold print giveth ("Extended Warranty"), the fine print taketh away. "Exclusions" is one key word. DS had someone pitching an extended warranty to him and he sent me the document. Exclusions included brakes, suspension, cooling system, and fuel system. About the only thing that was covered was a rod through the crankcase and IIRC the warranty did not cover the engine R&R cost. Another key is the maintenance requirement. If you miss complying with even the tiniest detail, they don't have to pay. (As @YVRRocketSurgery reported.)

Finally,

... I never insure against a loss I can easily sustain. ...

This!

 

[Montecfo]

Some people don’t realize that manufacturers extended warranties are negotiable in price. I’ve gotten them for as much as 50% off the asking price. They know it’s a high profit item, because even if they sell it to you at cost, you’ll bring the car to them for service and warranty work, of which the warranty work gets billed to the manufacturer. It’s a win win situation for them even if sold at cost.

true. In fact virtually all the add-on items are high margin and negotiable.

If you are inclined to buy a manufacturer's warranty at dealership (with caveat, generally a losing proposition and poor use of your insurance budget) just do some homework and say, "well I'm considering buying one from XYZ". In my experience they immediately cut the ask on the extended warranty.

But before buying insurance against relatively low cost auto repairs, I'd make sure I have adequate health, life, disability and umbrella insurance.

 

[Car-Guy]

I see a few here say they "never insure against a loss they can easily sustain"... But to me it makes a lot more sense to do a risk/cost/benefit analysis on a case by case basis rather than make such a blanket statement, even when you can afford the loss.

Example:

I buy health insurance each year since I know with ~100% probability that we are going to get "a lot more" out of the insurance company in claims payments than I'm going to pay in premiums. I pay about 6k a year in premiums and they pay out "at least" 15 to 20k a year in claims payments, sometime more. And that's at the insurance companies discounted rates. If I had to pay full rates (w.o. Ins) it would easily be 3 to 4 times that. It would be pretty stupid (IMO) to pay full freight when I can get such a huge savings even though I can afford to pay all the bills at full rates.

In my case, I look at the the risk of loss, cost of insurance, and potential claim benefits. Of course, other variables/details can come into play depending on what you are insuring. (Car's, homes, life, collectables, etc) In some cases I buy it, in many cases I don't, even though I can afford any covered loss.

 

[Ready]

I see a few here say they "never insure against a loss they can easily sustain"... But to me it makes a lot more sense to do a risk/cost/benefit analysis on a case by case basis rather than make such a blanket statement, even when you can afford the loss.

Example:

I buy health insurance each year since I know with ~100% probability that we are going to get "a lot more" out of the insurance company in claims payments than I'm going to pay in premiums. I pay about 6k a year in premiums and they pay out "at least" 15 to 20k a year in claims payments, sometime more. And that's at the insurance companies discounted rates. If I had to pay full rates (w.o. Ins) it would easily be 3 to 4 times that. It would be pretty stupid (IMO) to pay full freight when I can get such a huge savings even though I can afford to pay all the bills at full rates.

In my case, I look at the the risk of loss, cost of insurance, and potential claim benefits. Of course, other variables/details can come into play depending on what you are insuring. (Car's, homes, life, collectables, etc) In some cases I buy it, in many cases I don't, even though I can afford any covered loss.

I would agree but I think you are talking about traditional lines of insurance such as health care, home, auto, etc. Those insurance plans have the potential to cover hundreds of thousands of dollars of losses for a relatively small premium.

In the case of extended warranties, you are often paying 20% or more of the value of the product, knowing that the worst case scenario is the insurance would cover the value of the item being warrantied. So in the case of a television, a $300 warranty from Best Buy only protects you against a total loss of a TV that you paid $1,200 for. And realistically they will almost never agree to replace the unit, only repair it. So you will almost never get the full purchase price recovered.

 

[Car-Guy]

I would agree but I think you are talking about traditional lines of insurance such as health care, home, auto, etc. Those insurance plans have the potential to cover hundreds of thousands of dollars of losses for a relatively small premium.

In the case of extended warranties, you are often paying 20% or more of the value of the product, knowing that the worst case scenario is the insurance would cover the value of the item being warrantied. So in the case of a television, a $300 warranty from Best Buy only protects you against a total loss of a TV that you paid $1,200 for. And realistically they will almost never agree to replace the unit, only repair it. So you will almost never get the full purchase price recovered.

Agree, but he did say "insure" and not warranty, so I took it as insurance in general. Could have misunderstood. Also agree that many extended warranties are a rip off. I don't buy store appliance extended warranties either... I did buy an extended warranty on my last car (discussed earlier) but paid less than 2% of the cars purchase price. Cheap warranty for a high performance car, IMO.

 

[Montecfo]

Agree, but he did say "insure" and not warranty, so I took it as insurance in general. Also agree that many extended warranties are a rip off. I don't buy store appliance extended warranties either... I did buy an extended warranty on my last car (discussed earlier) but paid less than 2% of the cars purchase price. Cheap warranty for a high performance car, IMO.

Warranties are a type of insurance, using the terms generally. The purpose of insurance is loss mitigation.

Health, Life, Disability and similar have well established value propositions.

My point is that "insuring" yourself against a $1200 TV malfunctioning, or against a $6k drive train repair makes little sense if you do not already have higher value catastrophic coverages in place, to start. Get the most value from those dollars.

I do agree with Car-Guys point that analysis is indicated, but that analysis will just about always favor of self-insuring in my opinion and experience.

But you can't afford to insure yourself against all outcomes. If you did you would have to reduce your standard of living.

And warranties have very high profit margins. Theoretically if you self-insure affordable risks you at least are saving the profit, on average.

Just my opinion but wanted to better develop the underlying logic.

 

[Jerry1]

I would not buy the warranty described by the OP. I do buy manufacturers extended warranties when I buy a car. Of course, I buy GM’s and not Lexus’ so that might make a difference. On my last truck, bought a few weeks ago, I paid $2,700 for a 6yr/100K mile warranty. For me, it’s piece of mind. It’s an extension of the bumper to bumper warranty. I think the odds are good that if I keep the car 6yr or 100K miles, there’s a good chance that something will go wrong and I’ll break even or better. With all the electronics and all the extra stress they put on the vehicles in order to get the best gas mileage, I think my odds are good. For example, the stop start system and the fuel management system. When they go bad, it will be expensive. Of course, I go to the casino, so I know that the odds are not in my favor. But, I also know that some days I walk out of the casino very happy. I look at it kinda of like that. If something really goes wrong, of course I’ll be glad I bought it. If it doesn’t, something will likely go wrong that will chip away at my “prepaid insurance” amount and I will be “okay”. If nothing goes wrong, it wasn’t a good day at the casino, but I still enjoyed the vehicle - it just cost me about $40 a month or about 3 cents more per mile to drive. I’m okay with that.

One thing I will say is that with a manufacturer warranty, you don’t have to worry about crap parts or shoddy workmanship on your vehicle. The dealership is an expensive place but they are also the place where they know what they’re doing. Of course that’s not universally true, but they know their make of car well. If something really goes wrong, that’s where I want my car repaired.

 

[travelover]

........... I think the odds are good that if I keep the car 6yr or 100K miles, there’s a good chance that something will go wrong and I’ll break even or better. .........

If you were in the business of selling extended warranties, would you price them such that there would be a good chance that you'd pay more out than you took in from premiums? I don't think I would, and from what I've read, extended warranties are very profitable for those that sell them.

 

[Jerry1]

........... I think the odds are good that if I keep the car 6yr or 100K miles, there’s a good chance that something will go wrong and I’ll break even or better. .........

If you were in the business of selling extended warranties, would you price them such that there would be a good chance that you'd pay more out than you took in from premiums? I don't think I would, and from what I've read, extended warranties are very profitable for those that sell them.

I believe I addressed that in my post. I think casinos are very profitable too.

. . . Of course, I go to the casino, so I know that the odds are not in my favor.

 

[Bamaman]

I was in the car business 24 years, and my family still owns a Lexus dealership. If it's not the manufacturer's program, it's not worth the paper it's written on.

Skip the extended service plan (ESP). It's just a big profit center for any dealership.

If the car was German and you tend to keep cars many, many years, I'd tell you to get an ESP. But Lexus' are one of the most reliable vehicles in the market.

 

[rkser]

Thankyou everybody for your wise feedback & insight .
The car is here & I did NOT buy the extended Warranty & I think the car is a reliable auto & I should be fine. Thanks

 

[latexman]

I hate the way the dealers leave the high pressure Extended Warranty planS until right before the end before you sign the deal. They have the Gold Plan, Silver Plan, Bronze Plan, and all the way down to the Poor Man's Plan.

And, don't get me started on the unsolicited scam and robo calls I get almost every day wanting to sell me an Extended Warranty on my cars.

The marketing approach is another reason I buy reliable cars and self-insure.

 

[Car-Guy]

And, don't get me started on the unsolicited scam and robo calls I get almost every day wanting to sell me an Extended Warranty on my cars.

"Almost every day." Consider yourself lucky...

 

[Sgare]

Another thing I consider. The issuers of these warranties don't sit there trying to think of a way to lose money, they think of ways to make a good profit. That means they are going to take in a lot more money than they pay out.

 

[ncbill]

Our 2010 Lexus Rx 350 SUV had 1 repair cost of $850 for the Amplifier Replacement.
We did not elect to get the bad Rear Door (Trunk) ($300) pistons replaced, and the door needed a hand going up, and
The Engine Bonnet pistons went bad ($350) & needed the Rod for the Bonnet to be held up, which we did not repair.

All the above items went bad in the 7th tp 9th year, so yes no repairs needed for first 6- 7 years.
Carvana's Warranty Company is Silver Rock, which has good & bad reviews on the web.

The used Car is $40k purchase & the 5 year Silver Rock warranty which cannot be added later is $ 1125.
Lexus Warranty is around $250/month & Silver Rock Warranty is $23 a month.

Tempting & tough to decide.

Do you mean the gas struts used to hold open the hood?

When I got ahold of my relative's old Camry the original ones were dead (no rod)...I quickly figured out why there was a board in the trunk.

I bought the pair for ~$25 off eBay & I think my local mechanic charged $10 to install when I had the oil changed...they really torque those suckers down at the factory...I couldn't break them loose.

 

[Montecfo]

Do you mean the gas struts used to hold open the hood?

When I got ahold of my relative's old Camry the original ones were dead (no rod)...I quickly figured out why there was a board in the trunk.

I bought the pair for ~$25 off eBay & I think my local mechanic charged $10 to install when I had the oil changed...they really torque those suckers down at the factory...I couldn't break them loose.

yeah can be fun to deal with. Have replaced a few of those.

 

[Darrenb5]

I read an article once that suggested you take all the money you would have used to buy extended warranties and put it in an account. When the day comes that something breaks down, just use that money to pay for it.

 

[imnontrad]

ONLY consider a warranty extension via the Lexus dealership. Third party companies usually have so many restrictions that they pay out very little, if at all - VERY lucrative for the company owners.

 

[EdL3]

We’ve owned Lexus for years and never purchased them before until now (LS & RX). Do they make financial sense, that depends? The extra coverage for scratches and dents have been used quite often, multiple times per year on 2 different vehicles. The $500 coverage for a lost or damaged key has also been used.

In the end it’s more of a piece of mind thing than anything else.

 

[foxfirev5]

I read an article once that suggested you take all the money you would have used to buy extended warranties and put it in an account. When the day comes that something breaks down, just use that money to pay for it.

Simply yes.

 

[Oakster]

You also have to consider the percentage they will pay, the cost of the deductible and if you can meet all the specific terms of their warranty. I would not buy a warranty that controlled the quality of parts that I can use to fix my vehicle either, which some do. The upfront cost is $1125 but if that is spread over 3 repairs, how much is the deductible? is there an 80% / 20% match on the rest of the repair? With a reliable vehicle like the Lexus, I would pay myself the warranty money and keep it in the bank or invested.

 

[Oakster]

If you were in the business of selling extended warranties, would you price them such that there would be a good chance that you'd pay more out than you took in from premiums? I don't think I would, and from what I've read, extended warranties are very profitable for those that sell them.

Sweet and simple! I like it

 

[isisdave]

Remember that any dealer can sell you the manufacturer's extended warranty, and some make quite a business of this. Find your car's fan website and look. I remember that the dealer I bought the Prius from wanted $1500 but one across the country regularly sold them for $795 (in 2012).

 

[Montecfo]

We’ve owned Lexus for years and never purchased them before until now (LS & RX). Do they make financial sense, that depends? The extra coverage for scratches and dents have been used quite often, multiple times per year on 2 different vehicles. The $500 coverage for a lost or damaged key has also been used.

In the end it’s more of a piece of mind thing than anything else.

Some of the items you mentioned are a bit different. I recall I bought a Toyota new many years ago. I was paying cash but they still insisted I meet with the finance girl, probably 25 years old, attractive, low cut top. Coincidence I am sure.

After failing to convince me that paying cash was costing me money (her computer program "proved" it) she tried to sell me extended warranty, undercoating, scotch guard, etc. I patiently said no to everything, which made her increasingly frustrated.

Finally she said "is there ANYTHING I have mentioned that you are even mildly interested in?"

I said none but when pressured I said the paint sealer wash and wax service twice a year for 5 years was somewhat interesting. List price $500.

She: "what would it be worth to you? Just make an offer".

Me: "My offer would be something that would just make you feel bad"

She: "Will you offer it anyway?"

Me: "ok. $50".

She: "Ok I will accept your offer. My cost on that is $25.50 and I will get a $7.50 commission."

So I easily got my money's worth and I could determine how much value I got by how many times I took the car in for wash/wax.

But not the same as a warranty really.

 

[DaveInMi]

My take on extended warranties

Insurance companies on average will benefit more than you by selling extended warranties.
They don't sell these policies out of the goodness of their hearts.
Just like any insurance company, they use actuaries to determine the odds of being profitable.
It's like Vegas. On average, the house wins.