This calculator gives estimates for education and planning. It is not investment, tax or legal advice; for decisions about your own situation, talk to a qualified financial professional. At the checkout, you are often offered an extended warranty or protection plan. Whether it is worth it comes down to simple math: how likely a covered failure is, and what it would cost to fix. This calculator compares the two.
Expected value
The average value of a plan is the chance of a covered failure times what the plan would pay:
expected value = failure risk × (repair cost − deductible)
A plan costing $150 on an appliance with a 10% chance of a $300 repair during the coverage period is worth 0.10 × 300 = $30 on average. Buying it loses $120 on average.
The break-even risk is the failure rate at which the plan pays for itself:
break-even risk = plan price ÷ (repair cost − deductible) = 150 ÷ 300 = 50%
Few products fail anywhere near that often during an extended coverage period, which is why warranties are very profitable for retailers.
Why the math usually says no
- Many products are most likely to fail early, while the manufacturer’s warranty still applies.
- Credit cards often extend the manufacturer’s warranty by a year at no cost; check your card’s benefits.
- Repairs often cost less than the plan, or the product is cheaper to replace than to fix.
- Claims can involve shipping, waiting and exclusions in the fine print.
When it may make sense
- You could not afford a sudden repair or replacement and prefer a fixed cost.
- The product is known to fail often, is expensive to repair, and the plan covers accidents such as drops and spills, as for phones and laptops used by children.
- The plan is cheap compared with the product, often under 10% of its price.
A better alternative for many
Instead of buying plans, put the money you would have spent into a repair fund. Over many purchases, you keep the average profit the retailer would have made, and the fund covers the occasional failure.
Before buying, read what is excluded, who does the repairs and whether the plan is from the manufacturer or a third party.