Is an extended warranty plan worth it compared to the repair cost?
Compare one number to one number: the plan's price against the average cost of the repair it covers. If the plan costs several times that repair, you are pre-paying for something most people never need, so decline it. In the example, the plan cost five times the average repair, keeping $126.
How to do it
- Find the average repair cost this plan coversLook up what the typical repair actually costs to fix out of pocket. This is your first number.
- Find the plan priceNote what the protection plan itself costs. This is your second number.
- Compare the two numbers directlyPut the plan price against the average repair cost. Compare one number to one number, nothing else.
- Decline when the plan costs several times the repairIf the plan runs several times the average repair, you are pre-paying for something most people never need, so the answer is no.
Questions that come up
What ratio makes a plan clearly not worth it?
When the plan costs several times the average repair it covers. In the example the plan was five times the repair cost, which meant paying up front for a fix most people never need. The bigger the gap between plan price and repair cost, the worse the deal.
What if the repair would be catastrophically expensive?
The script's test is plan price versus average repair. If a covered repair costs as much as or more than the plan, the math flips and the plan can make sense. The rule only rejects plans priced far above the repair they cover.
Does keeping the $126 mean I self-insure?
Yes. Declining the plan means you keep the money and pay out of pocket if the repair ever happens. That works out ahead when the plan costs several times the repair, because most people never need the fix at all.
Full transcript
This plan costs five times the average repair — check that first. Compare one number to one number: plan price against average repair. Several times that repair means you're pre-paying for one most people never need. So here, the answer's no — and your hundred and twenty-six dollars stays put. Ask: average repair cost for this, versus the plan price?