Vocations · Job Skills · Smart buying

Is the warranty
worth the money?

At the register the question is always yes or no. Put a number on it: the chance the product breaks, what a repair costs and what the plan costs, and see what the plan is worth on average.

Check the offerWhat you get

The extended warranty value calculator

The worked example is a made-up three-year plan on a 55-inch TV. Nothing you type leaves this browser.

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What you get

Vocations · Job SkillsFree

What you finish with
The average payout, the plan’s expected value, the breakdown chance it needs to break even, its price as a share of the product and per year, and its value at other chances.
Who it is for
Students learning expected value with a real purchase, families deciding at checkout, and young adults buying a first laptop, phone or appliance.
Format
Browser calculator for a phone, tablet or computer, by touch or keyboard. Prints a summary; downloads a spreadsheet (.csv); export and import a file.
Access
Free. No account, no sign-in and nothing to install. Everything you type stays in this browser; nothing is sent to Caveat.
Where it lives
The Job Skills space in Caveat Vocations.
Support
Questions, a correction or a request: team@caveatacademic.com.

How to use it

  1. Type the product and plan prices.
  2. Count only the years beyond the maker’s warranty.
  3. Estimate the chance of a covered breakdown.
  4. Type a typical repair cost and any deductible.
  5. Read the break-even chance and ask if it is likely.

Check the offer

How the value is worked out

Expected value: the chance of a payout times its size, less the price.

The worked example: a 3-year plan on a 55-inch TVCovered repair$300under the $650 priceChance10%over the 3 extra yearsAverage payout$3010% × $300Against $110−$80breaks even at 36.7%The worked example: a 3-year plan on a 55-inch TVCovered repair$300under the $650 priceChance10%over the 3 extra yearsAverage payout$3010% × $300Against $110−$80breaks even at 36.7%
A warranty is a bet on the product breaking; the seller prices it so the average payout is less than the price.

Expected value

If many people bought the same plan, the average payout per plan would be the chance of a covered breakdown times what the plan pays. The plan’s expected value is that average less its price. A seller has to price plans above the average payout to cover costs and profit, so the expected value is usually negative.

When a plan can make sense

Averages are not the whole story. A plan can be reasonable if a breakdown would be a hardship you could not absorb, if the product is unusually fragile in your hands, or if the plan covers accidents. Check first what the manufacturer’s warranty, your credit card or the store already cover; overlapping cover pays nothing extra.

Sources

  1. Federal Trade Commission. Warranties and service contracts: what to know before you buy (consumer.ftc.gov).
  2. Federal Trade Commission. Businessperson’s Guide to Federal Warranty Law (Magnuson-Moss Warranty Act) (ftc.gov).
  3. Consumer Financial Protection Bureau. Building an emergency fund, for setting money aside instead (consumerfinance.gov).
  4. Common Core State Standards for Mathematics. Statistics and Probability HSS-MD.B.5: weigh the possible outcomes of a decision by assigning probabilities and finding expected values (corestandards.org).

The worked example is made up. The chance of a breakdown is your estimate. Your entries stay in this browser. Support: team@caveatacademic.com.