Extended warranties are nothing but insurance. You pay $X premium for a potential $XX loss. That’s insurance in a nutshell, which is essentially like a stock option.
My overall philosophy on all types of insurance is if you can afford the loss then you don’t need insurance. Will you be able to replace the $2,000 TV if it goes bad? If yes, then you don’t need insurance. If you can't, then you need a larger Emergency Fund (TVs shouldn't be replaced with money from an emergency fund, but if it's college football season, you get the drift)! Baked into the insurance premium is a profit. So you’re protecting against the loss and also making somebody else money.
Now if you can’t afford the loss though, then you need insurance. Loss of car, home, health, long-term disability or liability lawsuit are all things that most cannot afford to replace if it were to occur. Therefore, you need insurance on all of those items. Just don't get the extended warranty on a car. It's a rip off!
My overall philosophy on all types of insurance is if you can afford the loss then you don’t need insurance. Will you be able to replace the $2,000 TV if it goes bad? If yes, then you don’t need insurance. If you can't, then you need a larger Emergency Fund (TVs shouldn't be replaced with money from an emergency fund, but if it's college football season, you get the drift)! Baked into the insurance premium is a profit. So you’re protecting against the loss and also making somebody else money.
Now if you can’t afford the loss though, then you need insurance. Loss of car, home, health, long-term disability or liability lawsuit are all things that most cannot afford to replace if it were to occur. Therefore, you need insurance on all of those items. Just don't get the extended warranty on a car. It's a rip off!
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