Ted Landau's User Friendly View - Should You Care About AppleCare?

by Ted Landau
July 20th, 2006

The logic is simple. Extended warranties are almost always a bad deal for the consumer. AppleCare Protection Plans are essentially extended warranties for your Mac purchases. Ergo: AppleCare is almost always a bad choice. Well, maybe it's not quite that simple. But it's close.

Why should you "just say no" to extended warranties? Because the probabilities are such that, over the long haul, you will spend more money on warranties than on repairs. But don't just take my word for it; check out these quotes:

I was reminded of this advice recently when I chose to ignore it for the first time. I purchased a Dymo LabelWriter from Staples. At the register, I was offered a Staples warranty of course. I automatically replied "no thanks" before I had a chance to fully process what the salesperson had said: The cost of the warranty was only $5.00. That's on a product that was costing me over $100. The fee seemed so small that I reconsidered my decision and asked for more details. He told me that, with the warranty, if the product ever failed, I could take it to any Staples and get a free replacement. There would be no need to deal with the manufacturer. For five dollars, I figured this was a convenience worth having; I purchased the warranty.

And guess what? My LabelWriter turned up dead about 50 days later. The power light would not even come on. It was time to cash in on my $5.00 investment. Or so I thought. I went and got my copy of the warranty. The first thing I noticed was that, according to a table of fees in the pamphlet, the warranty should have cost $20. Apparently, the salesperson made an error and undercharged me. No wonder it seemed to good to be true: It wasn't true!

I would never have paid $20 for the warranty, but that was a moot point now. More to the immediate point, the fine print revealed that the Staples warranty did not kick in until after the manufacturer's one-year warranty expired. So I would not be able to take it to my local Staples after all. I know, this is my own fault for not checking the terms in advance! And it makes sense; it's pretty much the way all extended warranties work. Still, in the end, it only reinforced my belief that, even at $5.00, I should have heeded my own advice and skipped getting the warranty.

Paraphrasing from Hamlet: "The vendor doth promote too much, methinks." Vendors are not altruists at heart. They don't push extended warranties to save you money; they push them to make money. When you find that every manufacturer and retail store in the known world is at least mildly pushing their extended warranties, it's time to be suspicious.

Despite all this, many people claim to be quite satisfied with their extended warranty purchase. In fact, according to a table in the PC World article mentioned above, over 70% of the people who purchased an extended warranty report being "glad" they did. How can this make sense? Here's how:

In either case, what ultimately matters are not anecdotes but reasonable estimates of the most likely outcome. To illustrate, let's return to the AppleCare Protection Plan. AppleCare extends the complimentary 90 days of technical support and one-year warranty to three years. Now, I am not singling out AppleCare because it is an especially bad plan. To the contrary, as plans go, it is probably one of the better ones. I focus on it because, after all, Macs are what we are here to talk about!

So...suppose you plan to get a new MacBook. The cost of AppleCare on an $1100 MacBook is $250 (that's 28% of the cost of the computer!). To try to predict the likely financial consequences of getting, or not getting, AppleCare, we need to put together a couple of assumptions.

Here's one way to look at it: Let's assume that you replace your laptop every three years and that you purchase AppleCare with each new Mac that you buy. This means that, after nine years, you will have paid $1000 to get the extended coverage. For about the same amount of money, you could buy another MacBook instead.

Here's another look: In a recent Consumer Reports survey, only 17% of Mac laptop owners needed a repair of any type between 2001 and 2005. The percentage was even smaller (11%) for desktop Macs. However, these percentages include the first year (when most problems typically crop up and are covered by the standard warranty). They also appeared to include repairs that went beyond the extended warranty period or would not be covered by AppleCare under any circumstances. Regarding the latter point, Apple's warranty (as is true for almost all extended warranties) does not cover "damage caused by accident, abuse, misuse...or other external causes." So if your MacBook falls to the floor, AppleCare won't pay for any damage. Taking all of this into consideration, a reasonable estimate for the covered repair rate of a MacBook during the AppleCare period might be 10% (I suspect it is even lower, but I am trying to give AppleCare the benefit of the doubt here).

Finally, let's say that the average cost of such a repair would be $600 (that seems reasonable as it is more than half the cost of the MacBook).

This means that, if you bought 10 MacBooks tomorrow, you could expect—on average -- that one and only one of them would need a repair during the extended warranty period (from 12 months to 36 months after the purchase date). Without AppleCare, this will set you back $600. With AppleCare, this will cost you $2500 ($250 x 10). In other words, getting AppleCare would result in a net loss of $1900!

If you think the assumptions behind these estimates are off, substitute your own. As long as you stay within plausible limits, I am confident that AppleCare will wind up putting you in the red. Does that mean you should never under any circumstances get AppleCare? Pretty much, but perhaps not quite. Here are a few caveats:

If you are still on the fence here, consider this experiment: Every time you purchase any product (Apple or not) that comes with an extended warranty, don't buy it. Instead, put the money into an interest-bearing savings account (or just track this in a "virtual" account if you don't really want to allocate hard dollars this way). Only withdraw money to pay for repairs that would have otherwise been covered by an extended warranty. Unless you get some real bad luck right off the bat, this account should keep growing over time. After several years, feel free to use at least some of the money you've saved to celebrate your financial success.