Here's why most warranties are a waste of money
My husband and I have a disagreement on whether or not you would recommend buying a home warranty to cover appliance repair. I’ve read your books, and I think you’d say no. He thinks you believe it’s a good idea. Can you settle this for us?
Dear Dave,
My husband and I have a disagreement on whether or not you would recommend buying a home warranty to cover appliance repair. I've read your books, and I think you'd say no. He thinks you believe it's a good idea. Can you settle this for us?
Crystal
Dear Crystal,
No, I wouldn't recommend it. I don't buy warranties of any kind, and here's why. Warranties are usually based on somewhere between 12 and 18 percent of the cost of the warranty actually going to the probability of the repair. The rest is eaten up in profit, overhead and marketing costs. In other words, for 18 percent of what you pay — give or take — you could put that money aside, and on average you could cover the repair.
I don't buy extended warranties, either. Whether you're talking about something on a home, car or other item, these are the types of things you should be able to self-insure against with your emergency fund of three to six months of expenses. Besides that, if you can't afford to fix something you bought if something goes wrong, then you couldn't afford to buy that item in the first place!
So, put the profit, overhead, marketing costs and all that in your pocket. Make that extra money you made!
-Dave
Dave Ramsey is America's trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover,EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 6 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.