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How small businesses can unravel the extended-warranty conundrum

Christopher Null | June 6, 2013
The conventional wisdom has always held that extended warranties are a sucker's bet. It's often said that businesses far and wide--from automakers to computer companies--make more money on the sale of extended warranties than they do from the actual products they make. Consumer Reports has led this charge for years, finding that retailers that push extended warranties and service plans keep 50 percent or more of what they charge for them.

For businesses, the stakes are considerably higher. Extended warranties on major business purchases like laptops can be costly. Upgrading the standard one-year warranty on a Lenovo ThinkPad T530 to a four-year warranty will add $269 to the $849 price tag--and that doesn't include coverage for accidental damage (a massive $429 for four years). For a company with a fleet of 100 laptops, that represents an investment of over $40,000 in warranties alone.

But Stephen McDaniel, assistant executive director for the Service Contract Industry Council, a trade association for the service industry, says extended warranties have other tangible benefits that shoppers need to consider. "A lot of service contracts also come with free tech support for the life of the extended warranty," says McDaniel, even if the equipment isn't broken. And with computer gear, he says even a pricey warranty can be worth it. "With respect to laptops, a typical repair can cost $350 for an LCD screen repair or $450 for a new motherboard. These aren't insubstantial costs."

If you do consider an extended warranty, make sure you know what you're getting into. ITWire says to be especially wary of loopholes that don't cover certain components (one warranty excluded the backlights in LCD TVs), don't cover "fair wear and tear," don't cover shipping costs, or offer replacements but don't specify the equipment you're receiving will be new.

Minefields abound, but with tech products, don't forget to consider another big caveat: If your three-year old PC breaks down today: Would you really want to get it fixed, or would you want to buy a new one?


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