How to use the warranty worth it calculator
- Enter the plan price, the total you would pay for the coverage period, and any deductible per claim.
- List the repairs the plan would cover. For each, enter an estimated repair cost and your guess of the chance that it is needed during the coverage period.
- Read the expected covered cost, which is the average amount the plan would pay out across many people with the same odds, and compare it with the price.
- Change the guesses to see how sensitive the answer is. A result that flips with small changes is a weak basis for a decision.
Formula
Plan pays for a repair = max(0, repair cost - deductible)
Expected covered cost for a repair = chance x plan pays
Expected value of the plan = total expected covered cost - plan price
A positive value means the plan would pay out more on average than it costs, and a negative value means it would pay out less. Chances are probabilities that you enter, not measured data.
A $100 plan and a 10% chance of a $400 repair
A plan costs $100 and has no deductible. You guess a 10% chance of a $400 repair during the coverage period. Expected covered cost = 0.10 x $400 = $40.00. Expected value = $40.00 - $100 = a loss of $60.00.
With a $50 deductible the plan pays $350 of the repair, so the expected covered cost is $35.00. With a second repair of $1,200 at a 5% chance added to the first, the expected total is $40.00 + $60.00 = $100.00, which equals the price.
What an expected value does and does not mean
An expected value is an average over many people. You will either need the repair or you will not, so the average never happens to you. A plan with a negative expected value is a small, certain cost that protects you from a large, uncertain one, which some people value for peace of mind. A plan with a positive value is not guaranteed to pay out for you.
This tool is a decision aid. It cannot say whether you should buy the plan, and it gives no advice. The answer depends entirely on your guesses, which makes them the part to examine most carefully.
What is not modeled
The calculation leaves out the plan's exclusions and limits, the claim process and how easy it is, the repairs already covered by a manufacturer warranty, the chance that a seller or plan provider fails to pay, and the value of avoiding a surprise bill when money is tight. It also ignores what you could do with the price if you kept the money, such as saving it in a repair fund.
For a related decision about choosing between a lower and a higher deductible, the deductible comparison calculator uses the same expected cost idea. The cost per use calculator can show what an item costs you for each time you use it.
Assumptions and limits
- The costs and chances are your own estimates for the coverage period.
- Repairs are treated separately and their expected costs are added.
- The deductible applies once per repair.
- The plan pays whenever a covered repair happens, with no limits or exclusions.
Frequently asked questions
How do I decide whether an extended warranty is worth it?
Multiply each repair's cost, less any deductible, by your estimated chance of needing it, and add them up. Compare that expected cost with the plan price. This tool does that arithmetic, and the result is only as good as your guesses.
Where do I get the chance of a repair?
You have to estimate it yourself, perhaps from owner reports or the item's repair history. The tool does not supply odds, and it does not claim that any figure is right for your item.
Does a negative expected value mean I should not buy?
Not necessarily. A negative value only says the plan would pay out less than it costs on average. If a large unexpected bill would be hard for you to afford, you may still prefer the certainty.
Why can the deductible matter so much?
The deductible reduces what the plan pays on every claim. On a small repair it can cancel the whole benefit, and a deductible above the repair cost means the plan pays nothing.