That Extended Warranty Is Almost Never Worth the Money. This Is Why You Fall for It Anyway.

Legally speaking, every item sold in the US is protected by an implied warranty: The product will do the thing that a reasonable person would believe it’s advertised to do, for a reasonable amount of time. If it doesn’t, you’re entitled to a repair, replacement, or refund, said Steve Lehto, a Michigan-based consumer-protection attorney and YouTuber.

“Reasonable,” however, leaves a lot of gray area. So most companies spell out the exact terms in a written manufacturer’s warranty, which you can find printed on the box, in a pamphlet, or in the online product listing. For household goods and electronics, these warranties typically provide a year of protection against manufacturing defects, but it depends.

Extended warranties, on the other hand, are optional protection plans or service contracts purchased separately from the product itself. They cost extra, but they offer longer and sometimes more comprehensive coverage than the manufacturer’s warranty, often including coverage for accidental damage.

You’ve almost definitely been asked if you wanted to add an extended warranty to big purchases like electronics, appliances, or other home goods, right before you pay for the item. Online, the offers are frequently embedded into the product page or threaded into the checkout process; in stores, salespeople are often trained to try to talk you into buying a plan at the register.

Some of these protection plans are offered at a lump-sum payment, usually for a few years of coverage beyond the manufacturer’s warranty. For example, a five-year lump-sum protection plan for Wirecutter’s favorite washing machine, the $850-ish LG WM4000, cost between $160 and $230 in April 2026, depending on the provider. If the washer breaks down during the five-year coverage period, the extended warranty is supposed to cover the cost of repairs or replacement, and the provider will handle the logistics.

Then there are extended warranties with monthly premiums for ongoing coverage, which are becoming more common. AppleCare, many Best Buy Geek Squad plans, and the Asurion Complete Protect plan that Brown signed up for all operate this way, as do many others. They typically cost somewhere between $9 and $20 per month, and they often cover multiple products per plan.

These extended warranties are staggeringly popular.

Allstate alone reported that in 2025 it had more than 170 million protection policies in effect, which generated $2.8 billion in premium payments from policyholders. Apple doesn’t publish detailed subscription data, but analysts estimate that tens of millions of iPhones and iPads are covered by AppleCare+ protection plans. And if you buy protection for your phone through your mobile carrier, you’re in good company: Their plans cover an estimated 68% of premium smartphones.

It’s normal to be nervous about spending big money on a phone, TV, or refrigerator. But consumer advocates and other people who are good at math agree that extended warranties are usually a terrible investment. The stats indicate that you’re generally better off stashing the cash in a rainy-day fund.

Journalists and personal finance gurus have been on top of this story for decades. “I’ve talked to people who wrote the contracts for these warranties,” said Christopher Elliott, a longtime consumer-advocacy journalist and publisher of Elliott Report. “They’re pure profit to the company.”

Protection plans seem like a reasonable solution to a real problem: Sometimes, expensive products break early, and you’re stuck paying out of pocket for a repair or replacement.

But most products are actually a lot less likely to fail than most people expect, said Mike Abito, an economics professor at Ohio State University who has researched consumer behaviors in relation to extended warranties. “It’s as if they’re thinking that there’s a 15% likelihood that it’s going to fail, and they’re going to use the warranty,” but it’s often more like a 5% chance of failure for some categories, Abito said.

As a result, protection plans tend to go unused, and warranty providers usually get to keep 100% of your premiums. So while there might be individual cases where a protection plan would have saved you money on a repair or replacement, it’s much more likely that in the long run, you’ll come out ahead if you make a habit of skipping the coverage.

The unfavorable math for extended-warranty owners is reflected in the payout rates, namely how much the plan providers spend on repairs or replacements relative to how much they collect in premiums and deductibles.

Extended-warranty payout rates are far worse than those of any game at any casino. Statistically speaking, you’re actually better off pumping your money into a slot machine than buying a protection plan.

For every $100 bet, how much should you expect to lose on average over time?

Now, buying an extended warranty isn’t quite the same thing as playing craps. It’s more like a form of insurance, which is another financial service that everyone should expect to lose money on.

When you pay for health, auto, homeowners, or even pet insurance, most of your money goes toward the protection itself. (Even if you never file a claim and never collect a dime, someone else who needs the coverage will.) The rest of it — usually 10% to 40%, depending on the type of insurance and the provider — stays with the insurance company to cover operating costs (such as staff salaries and TV ads) and potentially turn a profit.

With protection plans for household goods, that ratio is flipped. Only about a quarter of your premiums ever get paid back to policyholders to cover their broken phones or refrigerators, according to our analysis of financial statements from publicly traded providers. The remaining 75% stays with the warranty underwriters, administrators, and their sales and marketing partners.

What percentage of your insurance premiums actually pays for policyholders’ claims?

Allstate reported a 24.8% claims payout rate in 2025 for its Protection Services business segment, of which SquareTrade and other extended-warranty programs are the largest subsegment. In contrast, Allstate’s home and autos segment reported a payout rate of 61.5%.

Assurant, which underwrites protection plans for T-Mobile, Lowe’s, Best Buy, and other major retailers, reported a 24.1% payout rate in 2025 for its Global Lifestyle business segment, of which device protection plans are the largest subsegment.

Asurion, the extended-warranty provider for many merchants, including Amazon and Verizon, and the parent company of the uBreakiFix repair-store chain, is privately held and not required to share financial information in the US. But its European division reported a 24% payout rate in 2024, according to Finsur, a protection-plan market-intelligence publication.

Much of an extended-warranty company’s take goes toward sales commissions for the retailer or broker that sold you the plan. Specific retailer earnings are hard to come by. But Best Buy, for example, reported that it earned roughly $373 million from the sale of extended warranties in 2025. That accounts for roughly 40% of its entire net earnings.

Protection-plan skeptics also argue that the kinds of products covered by extended-warranty plans aren’t even worth insuring.

“The question is, ‘Why is insurance generally a good thing but these extended warranties are not a good thing?’” said Robert Schindler, a marketing professor at Rutgers-Camden who has studied the psychology behind extended-warranty plans. “And that’s because of the importance of the potential loss.”

A car wreck or a house fire without insurance is a financial catastrophe, often on the scale of tens or hundreds of thousands of dollars, leaving you without access to basic needs. That sort of loss is likely to make your life worse for many, many years. A failing fridge or a lost phone is also a problem, but it’s probably not a financial calamity — and in all likelihood, you’ll have more money available to repair or replace such things as needed if you don’t buy protection plans. “If the size of a loss is small, it doesn’t make sense to pay something to protect yourself against it,” Schindler said.