Are Extended Warranties a Good Idea?

Laura recently traded in a pickup truck for a new pickup truck. She purchased an extended warranty, and Laura feels like that was a mistake. Dave advises her to cancel it right away.

QUESTION: Laura in South Dakota recently traded in a pickup truck for a new pickup truck. She purchased an extended warranty, and Laura feels like that was a mistake. Dave advises her to cancel it right away.

ANSWER: Cancel it.

The reason you were pressured is three-quarters of what you paid for that plan went to them in commissions. That’s why they were jacked up about it. They probably made more at that dealership on selling you this plan than they did selling you this truck.

Almost all of what you paid was commission. That’s why you felt the pressure.

People that think it over usually don’t do it.

Just cancel it.

Extended warranties are 75% commission. They’re about 12% actual statistical risk. And the other 12% goes to miscellaneous overhead and profit. The company that wrote you the warranty didn’t make as much on it as the car dealership made on it. That’s what’s weird. That’s how the model works.

It’s just crap. I wouldn’t buy it. That simple.

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