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How I got suckered into an extended warranty
29 comments- IT TOPICS:Hardware, Mobile & Wireless, Security
I should have known better. I'd seen the research showing that extended warranties seldom get used, that they're horrendously overpriced for the coverage provided, that they are tools retailers use to add fat profit margins onto low-margin consumer electronics products that almost never break. No matter. I am risk averse, and, when I signed my Verizon Wireless service contact in May of 2005, I was seduced by the "drop" and "loss" coverage provision in the optional insurance plan. "We'll cover you against breakage, even if you drop or lose your phone," the sales person said.
I listened, imagined my dismay as my LG VX6100 cell phone hit the sidewalk on the way out the door and promptly signed on to cover two phones at a cost of $11.90 ($5.95 per phone) per month. As it turned out I did have problems with one of the phones. But I didn't need the insurance to resolve them.
My first phone failed last March, when the "low battery" message popped up whether the battery was fully charged or not. After a long and frustrating round of troubleshooting to get to the root of the problem (a rather involved process, lovingly documented in Burned by Lithium Ion, the follow up entry, Mystery of "failed battery" deepens, and finally, Wireless phone follies: It’s [Not] the battery, stupid in which the culprit was identified and, I thought at the time, concluded this sorry saga). Bottom line: After finally determining that failed phone circuitry was to blame, Verizon issued a new phone - under the manufacturer's warranty.
LG paid for the warranty replacement. I had paid $130.90 in monthly insurance premiums to date. Asurion, Verizon's 3rd party insurance provider, paid nothing.
In September, some 16 months and $190.40 in premiums later, I woke up to the fact that I could buy a used LG VX6100 on eBay for about $30. So I cancelled the insurance. One week later my phone failed again, in exactly the same way as before.
With my wife wagging the "I told you so" finger at me, I made yet another fateful trip, hat in hand, to the Verizon store. A technician promptly pronounced the phone defective - and now out of warranty. But instead of telling me I had to buy a new phone or sign up for another two-year contract to qualify for a discounted purchase price, he offered to replace my phone for similar model for a $50 "exchange fee." Apparently Verizon does this as a service to its customers. Funny that no one explained that to me when I was sold the optional insurance. So when it comes to defects, my $190.40 went to cover a potential $50 per phone liability.
Now here's the really good part of the story: Today, when I spoke with the Verizon store manager about the fact that the replacement phone appeared to have the same defect as the first unit and was only six months old, he generously decided to replace it with an updated model at no charge. Verizon paid for the phone. I paid for the insurance. Asurion, now safely out of the loop, paid nothing.
Had I kept the coverage for the full term I would have spent $285.56. For that, if either of my phones failed due to a defect, I could replace it instead of paying a $50 exchange fee to Verizon. If I lost or dropped the phone, I wouldn't have to spend 30 bucks for a used Verizon compatible cell phone that my local store says it would program for me at no charge. Or, worst case, Asurion would have saved me the full purchase price of a phone, $269.99, by replacing it at "no charge."
But wait. Would I quickly and easily receive a replacement phone if I made a claim? Asurion Insurance Services Inc. (which also sells insurance under the by Lock/line LLC name) is based in Nashville. I looked up the company at the Better Business Bureau Web site. There are several entries for Asurion at various locations. Not all show problems. But this report for the Nashville office is not reassuring:
"Based on BBB files, this company has an unsatisfactory record ... Specifically, complaints allege failure of the company to deliver replacement phones in a timely manner, failure to provide consumers with replacement phones that have comparable features and poor customer service.
The company's response and resolution to complaints has been to offer replacement phones with comparable features and in some cases the company has offered refunds for customer good will; however the company has failed to correct the underlying reason for the complaints."
A full list of BBB reports on Asurion can be found by entering "Asurion" into the company name field on this BBB form.
If all that doesn't rattle your cage when considering cell phone insurance or extended warranties, read The Word on Warranties: Don’t Bother, in today's New York Times. Consider that "insurance companies generally post profits in the 15 percent range, while electronics retailers generate margins as high as 80 percent on warranties," that "in many cases electronics retailers make almost no profit on the goods they sell; they make almost all of it on the sale of extended warranties."
And read the comments made by Tod Marks at Consumer Reports in the Times story.
"He calls a warranty on an item like this a 'sucker’s bet.' 'You’re betting that one, the product will break, and two, that it will break in the second or third year,' after a typical manufacturer’s warranty expires, Mr. Marks said. 'And three, you’re betting that the cost of repair or replacement will exceed the cost of the warranty.' "
I was a sucker. You don't have to be.
Learn from my mistakes and never, ever, buy optional insurance on consumer electronics products.
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