The following is a guest post from The Rogue League:

A lot can be learned about warranties by knowing how they are accounted for. Accounting guidelines don’t require that publicly-traded companies separately disclose how much they spent on warranty expense. They only have to separately disclose their warranty liability if it’s deemed material (i.e. significant), and even then it can be done in the notes to the financial statements, not in the statements themselves.

This is significant because this means these companies can basically very easily hide their warranty expense and liability information from the less than astute investor. Why would they want to hide it? Because of what can be inferred from this information. If a company has a lot of warranty-related expenses, the public will view it as a producer of low-quality products. Conversely, if it’s warranty expenses are low, people will see no need to purchase a warranty from the company. A company doesn’t really want either of these things. They want the public to think they are producers of high quality products and, simultaneously, that they still need some kind of insurance. Because, at the end of the day, that’s all a warranty really is.

That is worth remembering here–that warranties are money-making devices, whether a company just rolls it into the overall purchase price of the product or they make it an add-on purchase. A company offers a warranty only after having determined that payments from customers will exceed the charges they expect to incur on repairs. In other words, the company is pooling the risk of all the individual consumers in such a way that they can offer protection to the individual but still make a profit. This happens, of course, because most people never need to use the warranty, or at least, not use it in full.

I think all of this is worth keeping in mind when deciding about what product to purchase and when considering its warranty situation. If the product is of very high quality, an extended warranty probably isn’t really worth it. you’d just be giving the company more money for no real reason. But, if you place a high value on peace of mind, and you just want to know that it’s there if you need it, then you might decide that a (extended) warranty is worth it. I think the main thing to remember here is that, overall, it’s a numbers game, and the company makes money off the arrangement. the odds are more likely than not, that whatever warranty payments you make, you will get less back in free services from the company.

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