Is a $1,600 extended warranty on my Lexus worth it?
I have a 1994 Lexus ES300 (the "cheap" Lexus). How I managed such a car is
beside the point, but I will own up to being good at saving money and being
middle-aged. In a year, my warranty will expire, and Lexus is offering a
continuation of the warranty at pretty big bucks. They want about $1,600 for
three more years. I wonder if it's worth it, especially since my drive train is
already covered for six years.
Please don't lose my letter under the bottom of a pile never to be found again
just because my car is less than 15 years old and didn't cost under 10 grand.
Even we grandmothers need your help!
Thanks. -- Bobbie
TOM: It was on the bottom of the pile, Bobbie. But fortunately, when my brother
moved the pile off the couch to take a nap, your letter slid out and we found
RAY: There's not a clear yes or no answer to this question. By purchasing this
extended warranty, Bobbie, you're betting that you're going to need more than
$1,600 worth of non-drive-train repairs in the next three years -- not
including the "wear" items like brakes, mufflers, wiper blades and air
fresheners (which you'll have to pay for anyway since most warranties don't
cover that stuff).
TOM: And I'm going to vote "no." First of all, it's a Lexus, and Toyota/Lexus
makes some of the most reliable cars on the planet. That doesn't mean yours
won't break, but it certainly means the odds are in your favor.
RAY: Second, you say you're a grandmother. And we know for a fact that people
who drive their cars gently spend a lot less on repairs. And most grandmothers
we know have already gotten the drag-racing bug out of their systems.
TOM: And finally, you say you're good at saving money. So if worse comes to
worst and something does go terribly wrong with the air conditioning or the
computer, it won't be the end of the world for you. So, you skip a few of your
crap games that month. Big deal!
RAY: So you're in a perfect position to take your chances and buck the odds,
Bobbie. Remember, an extended warranty is essentially an insurance policy. And
insurance companies have already calculated the odds for and against them in
this transaction. Then they've set the price so that they're going to win most
of the time.
TOM: Think about it. If the insurance companies regularly paid more for repairs
than they took in in premiums, they wouldn't be in the insurance business very
long, would they? They'd be in the philanthropy business.