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Consumer Service Plans: Worth the Cost?

Posted on: Thursday, 8 December 2005, 09:00 CST

If you've shopped for a computer lately, you've probably heard the hard sell. "Whatever you do," the sales guy says, "sign up for our service plan." Then you do the math. Most plans run between $249 and $299 for two or three years of service. For some laptops, that nearly doubles the cost, and for a $2200 machine, you're adding more than 10 percent. The big question is: Is it worth it?

Consumers and computer experts have different takes on the matter. So the quick answer is: It depends. And part of that "depends" is your situation: How much you'll lose if you're computerless for a while, and how good your particular service plan really is.

The other part is what your manufacturer's warranty covers exactly, and whether you need anything else.

It's not easy to hem and haw when it comes to service plans because some vendors insist that you buy the service plan on the day you buy the computer in order to be eligible.

But they usually have a return policy on the plan, too. So, if you're forced to make a decision fast, you do have that in the 14-day or 30-day loophole.

Before the return window runs out, though, it pays to scrutinize the fine print of your plan and make an informed decision.

What service plans are

"It's like any insurance policy," says Doug Jones, a professor of computer science at the University of Iowa. "The insurer wants to make money selling the insurance, and you can bet that they do on that $249 plan.

"On the other hand, you want the protection. If your machine breaks, you're going to be out far more, not just in the cost of replacement, but in the inconvenience and hassle," Jones says.

He explains the math behind the plan.

"Assuming that the service plan is offered on a not-for-profit basis, which is very unlikely, and assuming that they simply give you a new machine instead of trying to fix anything that breaks, which is not uncommon," Jones says, "you can figure that a service plan costing $250 on a machine costing $1,000 is a prediction that one in four of those machines will require replacement."

The numbers are actually skewed toward computer vendors, which is no surprise.

"My understanding is that the normal failure rate for consumer electronics is closer to one in six," Jones says.

Consider your product

Some products tend to break down more often, so consider that before you sign up.

"Large-screen, flat-panel monitors seem to have unusually high failure rates, with some models pushing 40 percent failures in the first year," Jones says, "while hard drives are getting very good, with failure rates down near 2 percent for the drives in desktops.

"Of course, most failures occur during the normal warranty period, and you don't need to buy the service plan to have those ones covered."

The major downside to service plans is that they don't cover negligence, Jones says.

"When my daughter spilled a whole glass of Coke into her laptop, the service plan didn't cover it," he says.

"At the time of the accident, her attention was elsewhere; she didn't see the spill until brown liquid was flowing out the CD slot in the side of her computer. Strangely, when she took it in for service under her service contract, they said the insides were full of evidence of the spill and that her service contract didn't cover it."

Generally, if you spill a double latte or drop your laptop on the kitchen floor, no service plan will help you.

But for other problems, a plan can step in.

Do you need a plan?

Service plans "can be very sensible, depending on how much equipment you have and how much maintenance they require," says Dan Heilman, editor of Computer User magazine in Minneapolis.

That's especially true if you're buying for a small business.

"If your company has got more than a couple of networked PCs, but isn't big enough to employ a full-time IT person, they can be a good way to get the security and the expertise without paying an extra salary."But for individual consumers, it's a different story. Heilman would tell a friend not to shell out $249 to Best Buy or Dell for three years of service.

"I wouldn't, because the manufacturer's warranty will cover you if you've bought a lemon. And the way price points are dropping, before too long $249 will get you a new machine."

The exception is the small business with many machines.

"Again, I think it depends on how much hardware you're talking about. For one laptop, I wouldn't bother, but if you have a 50-person sales force that's always traveling and beating up their equipment on the road, then it might be a good idea."

When you definitely don't need a plan

Before you sign anything, look at the dollar value of what you're buying. Some electronics stores operate the way some jewelry counters do, selling insurance at a cost that doesn't jive with the product.

If the cost of your desktop has decreased by 20 percent this year, or if your digital camera is half the price it was last year then you don't need a plan.

Even the sales guys will admit that, if you push hard and ask directly.

And you may want to look into the reputation of the electronics store or computer vendor before you sign up for their plan.

Consumer Reports has detailed information on where to buy a computer, and it's worth checking out before you make the double investment of a plan.

Saved by the plan

Some consumers swear by their service plan.

"I paid the extra money for the two-year service plan when I bought my Dell Latitude laptop, and it paid off a couple months ago when my USB port suddenly stopped working," says Maggie McKnight, a graduate student in Iowa City, Iowa.

"Within 24 hours of my calling Dell, a guy came to my house, took my laptop apart on my desk, replaced the USB port, and cleaned up after himself.

"There was no additional charge because I had the service plan."

Erica Bleeg of Portland, Maine, a photographer and writer, has also benefited from several years of Dell service, and her carefully saved receipts show that she actually came out ahead.

And yes, she'd pay for it again.

The battery factor

If you're looking at a laptop service plan, computer junkies say there's a key question to ask. That is: "Are new batteries covered under the plan?"

At Best Buy, for instance, replacement batteries are covered. So if you expect to buy a new $100 battery once a year, the three-year, $299 deal may really pay for itself.

Of course, if you plan to use your laptop lightly, that thinking doesn't work. But because many laptop-repair problems mean the whole machine needs to go, it probably makes sense to consider a service plan if you're purchasing a pricey laptop and you expect to depend on it.

What to look for in a plan

"Get all the facts you can," says Heilman. "At what point does the plan provider replace faulty equipment? How far beyond the manufacturer's warranty do they go?"

He recommends other questions too. "Are there makes and models of computers they won't cover? Do they do repairs on site or at least have a local drop-off spot, or do you have to mail them your equipment for repair?"

Finally, Heilman says, keep a cool attitude, and evaluate whether the hot-talking salesman really has your best interests at heart. It all depends on what you're using your machine for, what kind of backup you have, and what you stand to lose if your new PC goes kaput.

"Don't let anyone tell you that you absolutely need one, because every situation is unique," Heilman says.

That's true for business users too.

"Even if you have a good-sized fleet of computers, maybe there's someone on your staff who can do routine repairs and maintenance.

"But you might weigh the cost of one of these plans against the cost of having your whole system crash and stay down for a week or more, and find that you'll sleep better with that insurance in place."

So a service plan is like any insurance.

Great for the nervous; potentially helpful in a crisis; and though the sales brochures never say so, not a smart financial move for everyone, in every situation.

Source: Bankrate.com

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