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The original was posted on /r/lifeprotips by /u/manicdan on 2024-09-25 14:55:56+00:00.

Most warranty deals are about 50% profit (I used to sell this stuff). This can be for cars or electronics or appliances, nearly anything. For example if you are quoted $4000 for a 4 year extended warranty for your car, then on average people would spend $2000 across 4 years or about $500 a year. Even if you do not plan to buy a warranty, you can use this to help plan for possible upcoming expenses or compare how your product is doing against the fleet average.

Right now my Tesla is in the shop for what is estimated to be around $800, which would be really annoying except the warranty deal offered was $3100 for only 2 years, and I’m already 10 months into when that would have started. So as long as my upcoming costs are about $750 for the next 14 months, then my car is nothing special.

A different example is a Fitbit watch, they offer a 2 year warranty for just $30, on a ~$200 watch. So this lets us know that problems are probably quite rare, and having gone through warranty replacement a few times I can tell you, they just replace them. So if the value of that warranty is $15, and a replacement refurbished one is around $100-150 cost, then its likely around 10% chance the watch goes bad in the second to third year (they only include a 1 year warranty in the US but 2 years in the EU). This example does use a few estimates, but helps us guess a failure rate by playing with the varialbes.

(This LPT is not about IF someone should get a warranty, just how to use the pricing information to learn more about it)