QUOTE(RFCN2 @ Dec 3 2010, 12:59 AM)
Jan a John - your argument could be used against all forms of insurance, life, health, and so on. If you are rich then go ahead and self insure on all those things. But if not rich sometimes insurance makes life less stressful. I have extended warranty's on all four of our motor vehicles. Over the last 10 years I have been paid more than I have paid.
My motor home policy has been great. Extra ride has paid for a bunch of the first year issues on our used motor home and I still have almost two years of protection.
Strongly disagree. Yes, everybody needs insurance to cover risks where a loss could be so great relative to his assets that it could ruin him or at least be very destructive financially. That's why most people need for example medical and car (especially liability) insurance. I never suggested otherwise. But any risk that can be covered out-of-pocket without doing serious financial damage is not in that category, and for those risks it is cheaper in the long run to self-insure. Extended warranties are in that category.
The rule-of-thumb is fairly simple. We all have risks in our lives. We can accept those risks or pay somebody else to take them in our place (buy insurance). People who do that (insurance companies) know what they are doing and don't do it to lose money. They charge more, lots more, than they are likely to pay out. So it is always cheaper on an expected value basis to self-insure, and the only rational reason to pay somebody else to take our risk for us is if the potential loss would be a disaster for us, which in turn depends on one's own asset base.
If you have collected more than you have paid, good for you, but others who bought those same policies have collected less, much less on average, or the companies that sell the policies would be out of business, which they're not. Those other buyers and you played the game, and they lost while you won. But you can't know going in that you will be the lucky one, and consequently getting in the game is still a bad decision. It's like somebody who wins in Las Vegas. Good for him, but that doesn't make it a good idea to walk into a casino and lay your money on the table. Just ask your mother. (Full disclosure--I'm not a gambler, but I do own casino stocks, which are doing very well--that's the way to make money from gambling).
As to extended warranties on rv's (and cars and TV's and so on), the financial consequences of having to pay a big repair bill, in the unlikely event it happens, are not great for most people, who ought to be able to stand the (relatively low chance) of that level of payout. Consequently, unless you are living on the razor's edge financially, from a rational standpoint buying an extended warranty is a bad decision. It is an expensive way to achieve "peace of mind." It's an illusion of a free lunch, and in the end the probability is you're giving your hard-earned money away to insurance companies.
Maybe I'll look into buying stock in some of these extended warranty companies and get some of that action for myself. After all, Warren Buffet made a good chunk of his billions on GEICO. Why not me too!