Are Appliance Protection Plans Worth The Cost?
Unfortunately, on a very busy morning last week, that didn’t happen.
Wrapped in a towel I went downstairs to our mechanical room and confirmed my fears; our hot water heater was displaying an error code and was not running. I turned the unit off and on several times, but it would not run.
Luckily for us, we pay each month for an appliance protection plan that covers our appliances in situations like this. We called our service provider, and the water heater was back up and running in no time. The technician told us that our plan really saved us because between the part and the labor our bill would have been about $500.
But did it really save us?
Our Real Life Comparison:
We enrolled in the plan 18 months ago after a previous breakdown of the same water heater. With a payment of $26 a month, we’ve paid a total of $468 for our protection plan. We would have been better off just saving our money and paying with cash.
Plan Enrollment at the End of Warranty Period:
Another comparison would be to compare all the repairs on all of our appliances from the time we built our house to the cost of the plan had we enrolled at the time we moved in. That course of action wouldn’t be a very smart move given that all our appliances had a one year warranty. So instead, I did a price comparison had we enrolled in the plan after the warranty expired.
To date we’ve paid out $575 in appliance repair bills, plus the estimated bill of $500 that we didn’t have to pay this time. That’s a total of $1075 in appliance repair costs incurred. In comparison, we would have paid $2626 in plan fees (101 months * $26 a month) if we had enrolled in the service plan at the end of the warranty period.
Appliance Protection Provider: 2, Kernin family: 0.
Plan Enrollment at 5 years:
As another potential scenario, less see what the comparison would be if we would have rolled the dice and expected that no issues would occur during the first 5 years of life of our appliance (1 year of warranty + 4 additional years) and then enrolled in the protection plan. All of our appliance repairs have occurred within the last couple of years, so the total incurred cost would still be $1075, compared to $1378 (53 months * 26.00 per month) paid in plan fees.
We lose again.
Savings Account
Finally, let’s see what would have happened if we would have put the $26 a month into a savings account. For an apples to apples comparison, let’s say we started saving the $26 a month after the warranty period expired. As mentioned above, that would be $26 a month for 101 months for a grand total of $2626. If we subtract the $1075 we would have paid for repairs, we would still have $1551 (plus some nominal amount of interest) sitting in a savings account.
Given the facts, we have been on the losing end of our appliance protection plan, and would have been so regardless of when we enrolled. Our best option would have been to just put the money into a savings account. That being said, there may still be some valid reasons to be at peace with having enrolled in the protection plan:
Peace of Mind: Having to throw down $500 for a water heater repair is a hard thing to swallow. If you don’t have the self-discipline to put away money in an emergency fund, or into an appliance repair fund you may not have the money to pay for a high cost repair.
Variability: I admit that we have been pretty lucky in regards to appliance repair needs. This latest repair accounts for almost 50% of all the appliance repair costs that we would have incurred. You never know if your going to have the proverbial “problem appliance†that always seems to need something fixed.
Do you have an appliance protection plan? If not, how do you plan ahead for appliance repair bills?
Brought to you courtesy of Brock
Brock is a software engineer by day and personal finance blogger at night. He is a fitness junkie and enjoys grilling and smoking meat. Married with two children, Brock strives to improve his skills as a husband and father, and is always on the lookout to stretch his family’s budget as far as he can.
We have had the plan since we moved in, so for about 6 years. We’ve used it three times, once each on the washer, oven, and furnace. Each probably would have been $200-400. I figure we’ve probably paid above the total over the 6 years, but not having the big expenses hit was big. One other advantage is that we got dispatched very quickly each time, and they always dispatched to our preferred appliance repair shop. Since it’s guaranteed money, the repair shops will tend to give priority to the jobs dispatched from the plan (in our case, the gas company).
@MoneyBeagle – your case is the “variability” one I mention above where you have more repairs than you would have hoped. There’s so many variables and possibilities it’s hard to predict which path will be taken, but it sounds like in your case you made the right decision!
I have always dodged the ‘service plans’ for the reasons you mentioned, but now that I’m starting to buy mid-high appliances I’m beginning to reconsider.
We do not have the discipline to save the money nor the money to plunk down yet if one should break.
Any thoughts on the HVAC maintenance plans where they come and service and checkup the heat and A/C a few times per year?
@Dan – sounds like you may be a good candidate for a protection plan if you don’t have the discipline to save the money in advance. OR, make the commitment to do so. 🙂 I don’t have any thoughts on HVAC plans at this time, unfortunately. Although that’s a great idea for a future blog post!
Appliance repair will never be a thrilling practice…not for you or the appliance repair man who seem to be receiving paid attractively. In most cases, his fees are reasonable when you look at things from his point of view.
@james – I’m not sure about that…we had a repair guy come in and use sandpaper on our ignition sensor once when it wouldn’t keep running. He was in our house for less than 5 minutes, and we got the standard house call bill of $80. I’d love that payrate (I do know full well that since he worked for a company he didn’t receive all of that pay, but still – it was ridiculous).
We’ve never had an appliance protection plan, so we’ve always saved up the money to repair appliances. We just have a general savings account, that we put extra money into when we have it. Because it’s unpredictable – who really knows when you’ll need to repair an appliance – we don’t put a set amount in each month.
@Daisy – It certainly is unpredictable – it’s almost like an appliance protection plan is more like insurance. Hm that’s an interesting perspective….thanks for stopping by!