In the last week I have received three letters from PC World asking whether I’d be interested in giving them large amounts of money for no real benefit.
OK that’s not entirely true, but it’s not far wrong. You see, they’re trying to scare me into buying an extended warranty for the laptop I bought a year ago by telling me it’s probably about to fall to pieces.
In case you haven’t heard of them before, extended warranties basically insure any product (usually electronic or white goods) against damage once the manufacturer’s guarantee expires. This all sounds reasonable, but these policies actually offer extremely poor value for money - even more so than payment protection insurance. Here’s why.
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Let the rip off begin
First off, it’s unbelievably expensive, costing anywhere up to 65% of the purchase price of the product you’re looking to cover. Such policies also come with a host of exclusions – wear and tear, accidental damage or damage by computer virus – that negate its usefulness
Next, most products you buy will come with a 12 month manufacturer's guarantee, which provides all the protection you need but won’t cost you a penny. And those with home contents insurance may find they are covered under that as well.
You’re further protected by the Sales of Goods act, which states that goods of unsatisfactory quality must be repaired or replaced at the seller’s expense. And finally, if you buy something worth over £100 with your credit card, you will be covered by Section 75 of the Consumer Credit Act, which says your credit card company is liable for any faults with the product.
So there you have a host of generic reasons why extended warranties are a terrible waste of money. Now take a look at my PC World experience as a case in point.
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Numbers don’t add up
I purchased my laptop for £290, and PC World is offering to insure it for three years at a cost of £191 – that’s two thirds of my machine’s purchase price. This is bad enough in itself, but we haven’t yet factored in depreciation (as you probably know, electronic goods lose value at a staggering rate).
After trawling various sites for comparison, I worked out that a used, one year old laptop with the same specs as mine is worth a puny £133 on average. That means PC World wants to charge me premiums that are 43% higher than the current value of my laptop!
Can you imagine any insurance scenario where this would seem like good value?
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Even PPI is better value
To put this into perspective, let’s compare it to payment protection insurance. Granted it’s not really the same thing, but PPI has a reputation for being extortionately expensive and that’s what I’m trying to highlight about extended warranties.
A £10,000 loan from MoneyBack Bank costs £11,475, but tack the lender’s PPI on the loan and that soars to £13,985. That means PPI costs £2,510, or 25% of the cost of the loan.
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Cover doesn’t match the price
Considering PC World wants to charge me an extortionately high premium, I can safely assume I will be covered for absolutely every eventuality, right?
After trolling through the fine print on the back of the letter they sent me, I can confirm that I will not be able to claim for: Loss or theft, damage by lightning, rain or any severe weather, damage by a computer virus, the battery, or any cosmetic damage (where the laptop still works).
And as a final point, the general rule of thumb is that new computers become obsolete in four years, meaning that in the final year of my cover I would be paying to insure something I may no longer be able to use.
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Are people being bullied into buying?
Despite all these problems, extended warranties are actually big business in the UK. Recent research shows policies worth £900 million are being sold every year and the figure is rising.
One possible reason for this is the aggressive manor in which they are being sold. Not only in store, but also in after sales (as witnessed by the three letters I was sent in little over a week).
If you feel you were pressured into buying a policy, there is a 45 day get out clause that allows you to cancel the policy with no penalty (assuming you have not claimed, of course).
If you would like to read more on extended warranties (and why they should be avoided), click here.
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