Just Say No

No season like the holiday season brings out this experience.

You pick out your favorite piece of electronics -- a PC, an iPod, a game console, a new TV. You look for the best price. You get the "expert" opinion from the tattooed salesperson. You choose and head for the register.

Now comes the real sales pitch.

Regardless of what you just heard about the quality of the gadget, they swear up and down that you should buy the extended warranty. To cover "anything" that breaks; to help you sleep at night.

You ask, "How much?" and the answer comes back in a wallet-ripping $60 for a $250 product. Despite your rolling eyes, the salesperson rattles on, convinced.

And why, you might ask? Because extended warranties are the most profitable part of many retail businesses. While consumer electronics carry profit margins as low as 5%, extended warranties may bring a 50% or higher profit margin. And that salesperson may make more commission on the warranty than on the sale.

At the end of the day, extended warranties amount to expensive insurance. You're insured against some things (product failure) but not everything (you lose it, wreck it, or never learn how to use it).

You pay a large amount for a short coverage period for a product that generally doesn't fail or wear out.

A good deal? Probably not.

Click here for the video version of this story from Jennifer Openshaw.