Purchase protection. Service contracts. AppleCare. Whatever retailers call them, these plans are almost always bad deals.

Shop for a phone, TV, computer, tablet, sofa, appliance, vacuum, grill, or dozens of other types of products and you’ll likely be urged to shell out for a “protection plan” (also called an “extended warranty”). Consumers’ Checkbook often evaluates such “peace of mind” policies, which also include home warranties, travel insurance, rental car coverage, and more. They’re all bad deals, designed to make sellers lots of money while providing little value to consumers.

No wonder retailers relentlessly push extended warranties. Home Depot’s best-selling front-loading Whirlpool washing machine runs $699; purchase it on the web, and the retailer urges adding a “Protection Plan” for an extra $100 for a three-year extended warranty. Buy a Samsung TV from BestBuy.com for $329, and at checkout the website recommends “Protect your TV” with a $59.99 two-year plan from Geek Squad or a five-year one for $69.99. Go to the Apple Store and shell out $799 for an iPhone 17 and it’ll offer its popular “AppleCare coverage” for “Peace of mind in every plan”; for $11.99/month or $119.99/year you’ll get insurance against accidental breakage, theft, or loss. Amazon offers service contracts for even small purchases like portable car battery jump starter kits that cost less than $40.

To sell these policies, retailers prey on our “loss-aversion” tendencies. Most consumers would much rather avoid losing something than pay the same price to replace it; for some reason, losing a $100 bill feels far more painful than buying something for $100. By offering a way to minimize the risks of a bad buy—or to reimburse us for a broken gadget—retailers make customers feel better about shelling out hundreds or thousands of dollars for their products. But the plans they’re hawking aren’t worth the money.

Big Profits for Companies, Little Value for Consumers

The easiest way to determine whether protection plans provide value to consumers is to compare the amount of money paid for these policies against the costs incurred by the warranty companies to settle repair claims. For instance, if Apple pays out on average $100 per year to fix or replace phones insured by its AppleCare program, maybe its $119.99/year price for the insurance isn’t a bad deal.

But AppleCare’s costs are far, far lower than the revenue it pulls in; Apple generates enormous profits from selling its protection plans. Other retailers selling policies for third-party insurers typically pocket commissions of 40 to 60 percent. Many analysts estimate that less than 20 cents of every dollar spent on extended warranties gets paid out in claims.

Unfortunately, companies that sell these plans usually don’t disclose how much money they make from them in their financial reports to shareholders. Among large retailers, only Lowe’s provides insight. In its 2024 annual report, it disclosed $1.268 billion in deferred revenue from protection-plan sales, with $561 million of that revenue converted as “recognized as sales.” Compare those earnings against the mere $210 million it paid in claims, and that means Lowe’s paid out only about 16.6 percent of what it took in to fix or replace stuff for customers who bought protection plans. Lowe’s total profit from extended warranties? More than 60 percent.

In 2022, Apple stopped providing details on AppleCare revenue and costs. At that time, the operator of the world’s largest extended warranty program earned an estimated $8.5 billion from selling optional warranties, according to Warranty Week newsletter. That’s a small percentage of Apple’s overall revenue, but its earnings from AppleCare were more than enough to pay for any type of warranty claim, including claims made by customers for recently purchased devices under Apple’s standard manufacturer warranty. In other words, Apple convinced so many of its customers to pay extra for AppleCare coverage that its revenues from the program easily paid for all of the company’s costs to deal with all its customers’ warranty issues.

In 2005—the last year Best Buy itemized profit centers in its SEC filings—about one-third of its total profits came from warranty sales.

Protection plans are also incredibly profitable for Assurant, SquareTrade, and other third-party insurance companies that partner with retailers to sell service contracts. In its 2024 annual report, Assurant reported about $9 billion in revenue from its extended warranty business, which includes product and vehicle service contracts. The report says it paid out only $1.7 billion in “policyholder benefits” (aka claims). The rest of the $9 billion in earnings went to profits, commissions paid to retailers, and other overhead.

It’s Expensive Insurance

Extended warranties are insurance policies. While you should buy insurance to protect against risks that could be financially catastrophic—house fires, liability claims, auto accidents, medical care—you shouldn’t bother covering the risk of paying for repairs or replacing most items that you buy.

Yes, it would be financially painful to replace, say, an $800 iPhone. Because they’re used constantly and therefore prone to accidents or being misplaced, insuring them might seem reasonable. But for most consumers, what AppleCare offers is overpriced. For example, a base-model iPhone 17 costs $799. For no extra cost you get a one-year limited manufacturer’s warranty covering repairs and 90 days of tech support. Add AppleCare+ for $11.99/month or $119.99/year, and you’ll get an extended warranty against breakdowns, plus coverage for accidental damage, theft, or a lost phone.

The problem? Even after those premiums, you’ll still have to pay extra if you run into trouble. Cracked screen? AppleCare+ has a $29 deductible to fix it; you’ll pay a $99 deductible if your clumsiness or a product defect necessitates a different type of repair. If you lose your phone or it’s stolen, the deductible is $149 per occurrence, and you’re limited to two losses per year.

So, if you’ve insured your $799 phone with AppleCare+ and then your phone is damaged beyond an easily repaired cracked screen, you’ll spend $219 (annual premium plus deductible) or $243 (monthly premium plus deductible) in just one year. Phone lost or stolen? You’ll pay even more—$269 or $293 in just one year—for both the premium and the deductible. Those are significant out-of-pocket expenses even for a $799 phone.

Warnings from retailers about possible expensive repairs down the road make less sense when you consider that many products are very reliable. Those that do break down—especially electronics—are likely to do so right away, while still covered by the manufacturer’s warranty.

Even if you need a repair, its costs are often comparable to the price of the protection plan. Most retailers charge $100 for three-year extended warranties for major appliances. The odds of a breakdown in the first three years are low, and the average repair cost of washers, dryers, refrigerators, etc., is less than $200 a visit. Why purchase a spendy, probably unneeded insurance policy to cover an affordable repair?

Many retailers also push extended warranties to foster a sense among customers that, if a product is defective or breaks down, it’s the customer’s problem. After passing on extended-warranty offers, some consumers may later feel responsible when products break down and think that they assumed risk by passing on a warranty plan. But manufacturers and retailers are obligated to warrant that products they sell are free of defects.

Credit Cards and Costco Often Provide Similar Protections for Free

Many credit cards automatically provide free extended warranties when you use them to pay for products with manufacturer’s warranties (although vehicles and boats are usually excluded).

For example, Citi’s Platinum Select Card will add a 24-month plan to any manufacturer’s warranty to cover repairs or to replace an item if it can’t be fixed. Reimbursements are capped at $10,000 per item. The American Express Gold Card offers a nearly identical perk, although its repair-or-replace provision lasts just a year beyond any original warranty.

Check your credit card benefits to see if you get this coverage. In recent years some cards have yanked perks, especially for entry-level cards. Read the fine print to check requirements to file a claim. A common roadblock is that you’ll have to provide full documentation of the purchase, including an original credit card receipt.

If you go to Costco to snag a TV, computer, appliance, or another product backed by a manufacturer’s warranty, you automatically get a free one- or two-year extended warranty.

The fact that these companies give away this coverage is further evidence that the plans sold by stores aren’t worth much.

Still Want a Warranty Extension? Wait to Buy It

If you can’t get a free warranty extension, you can usually add coverage up to 60 days after buying the product. Some stores allow you to buy coverage until just before the manufacturer’s warranty expires. So take time to think it over—and to see whether the product you bought is prone to problems.

If you’re going to waste money on an extended warranty, you may as well waste as little as possible. You don’t have to buy the store’s plan. There are many companies that sell warranties for products purchased elsewhere, so shop for the best price for the product, then look separately for the best warranty deal.

For instance, Allstate’s SquareTrade—the largest seller of standalone plans—offers coverage for most electronics and phones, and its coverage is usually cheaper than what retailers offer. You can buy a SquareTrade plan on its website or from Costco.

Check What You Get

We waded through the small print for several extended warranty plans and found most offer decent coverage. (Basically, they promise to pay to repair breakdowns that would also be covered by the original manufacturer’s warranty.) But before you buy, check for excluded problems and what happens if something can’t be fixed. Some plans promise to replace a product if it can’t be repaired or requires more than four repairs, but the replacement can be a refurbished or rebuilt unit.

The biggest stumbling block? Most extended warranty plans require an original store receipt to file a claim. And some absurdly require that you not only provide a copy of the warranty you bought, but also proof that you still own the product (“here’s a pic of me wearing an apron and standing in front of my gas grill that won’t fire up!”).

How Long Does It Last?

Many stores advertise the total length of time you’ll have coverage, including the manufacturer’s warranty. If the product warranty lasts two years, and the store is selling a one-year extension, it might sell it as “three years of coverage.” That means you could pay $100 or more to extend warranty coverage for just an extra year.

Is There a Deductible?

As we’ve mentioned, if you buy AppleCare and need a repair or replacement, you’ll still have to pay a deductible for fixes or a new device. Do the math and you’ll often find your total potential out-of-pocket cost for “free” repairs makes the cost of coverage less sensible.

Does the Contract Cover In-Home Service?

You probably won’t want to lug your 75-inch TV across town or keep massive amounts of shipping materials in case you need to send it away. Service contracts for major appliances (refrigerators, washers and dryers, etc.) do cover in-home repairs. How you get repairs for TVs, computers, and electronics varies depending on the warranty seller.

Which Repair Companies Can You Use?

Even if the warranty pays for repairs, you don’t want to deal with a lousy shop. Unfortunately, many retailers’ warranties lock you in to having repairs done by the seller’s own shop or a designated facility. That’s frequently bad news. For example, Best Buy’s repair services get some of Checkbook’s lowest ratings for computer repair services. Ditto “authorized” repair centers for major appliance brands. Having repairs done by these services might be a hassle—and could still result in a malfunctioning product. Independent shops tend to score much higher.