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Why extended warranties for new tires are a waste of money

By Len Penzo

For the Deseret News

Published: Saturday, June 22 2013 8:39 a.m. MDT

You may want to think twice before buying into potentially unnecessary warranties.

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Editor's note: This article by Len Penzo originally appeared on his blog, Len Penzo dot com. It has been reprinted here with permission.

Awhile back I bought four new tires for my 1997 Honda Civic. The tires came with a pro-rated 65,000-mile guarantee and were $74 each, or just under $300 for the entire set.

As the salesman was tallying up the bill he asked me if I would like to purchase the extended warranty for my brand new tires.

“And how much is that?” I sheepishly asked.

“It’s only $9.95,” came the salesman’s immediate reply.

“Is that per tire?”

“Well, yes.”

“So it’s not really $9.95, right? What you should have said is that it’s going to cost me an extra $40.”

I think I caught the salesman off-guard because he immediately tried to assure me that he wasn’t trying to pull a fast one. I nodded my head, but my raised eyebrows belied my true feelings.

That’s when the guy looked me straight in the eye and insisted that the extended warranty was “a really good deal that most people take advantage of.”

I passed on the warranty but, if what that salesman told me is true, it troubles me that there are a lot folks out there who insist on wasting their money for dubious services.

Prorated Tire Warranties

Almost all tires come with a pro-rated warranty from the manufacturer that typically cover only workmanship defects. Reimbursement is prorated, depending on how much tread is remaining when you make the claim. The rest comes out of your pocket.

Of course, new tires are rarely defective, but when they are, a defect usually becomes apparent soon after the tire has been purchased.

Extended Tire Warranties

Extended tire warranty plans are meant to cover what prorated manufacturer warranties usually don’t: replacement or repair of damaged tires and rims from road hazards like nails, pot holes, sharp debris, and other hazards. They don’t usually cover alignments, however, which may be required if your car hits a curb, pothole or other hazard hard enough. Even so, that sounds like a pretty good idea, right?

Not really.

Here are a few reasons why you may be better off taking your chances by not paying for an extended tire warranty:

Some tires may come with free road hazard warranties. Although uncommon, some manufacturers and dealers actually offer free road hazard warranties. Ask your tire salesman to double-check and see if your tires already come with one. After all, why pay for something if it’s being offered for free?

The odds favor the dealer. If extended warranties weren’t to the dealer’s benefit, they wouldn’t be offering them. I’ve driven more than 500,000 miles in my lifetime. Over that time, I’ve driven over a nail or some other debris that has punctured my tire and caused a flat on just two occasions; that’s an incident rate of less than once every 250,000 miles. In my case, considering the new tires I bought are only expected to last 65,000 miles, it made little sense to insure them.

The cost-risk ratio is too high. Despite the low risk of tire damage due to road hazards, let’s say I did run over a nail that damaged my tire. The cost of replacing the tire is $74. Considering that I would have to pay $40 for the extended warranty, my ultimate savings would be $34. It makes little sense to spend $40 in the off-chance that I might save $34.

Remember, insurance and extended warranties are supposed to protect us from high risk events and losses that we can’t afford to replace. For most car owners, a flat tire is a low-risk low-cost affair that can be easily offset by scrounging up loose change hiding under the sofa cushions.

OK, OK. You’ll probably have to raid your change jar too. But you get the drift.

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