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Path: utzoo!linus!philabs!cmcl2!seismo!hao!woods
From: woods@hao.UUCP (Greg Woods)
Newsgroups: net.consumers
Subject: Re: Are service contracts worth getting?
Message-ID: <1539@hao.UUCP>
Date: Mon, 13-May-85 15:34:05 EDT
Article-I.D.: hao.1539
Posted: Mon May 13 15:34:05 1985
Date-Received: Thu, 16-May-85 02:24:41 EDT
References: <1406@mtx5b.UUCP>
Organization: High Altitude Obs./NCAR, Boulder CO
Lines: 38


  I think service contracts are in the same category as auto and homeowner's
casualty insurance policies. They are a ripoff unless something bad happens,
in which case you will profit (and pay higher premiums, but I don't know if
they can do that with a service contract!). The best analogy I can think
of is a lottery ticket: the expected value of the ticket is certainly less
than it costs to buy one (otherwise the state would lose money selling
them), but some of them *are* million-dollar winners.
  My policy on these things is: unless the consequences of disaster are more
than I can afford to replace myself (like a fire in my home), I do not go
for insurance or service contracts. Since I could (in the worst case) afford
a $200 or so repair bill for my washer, I wouldn't pay for a service contract,
preferring instead to play the odds (which are against a service contract
paying off. If they weren't, the dealers couldn't afford to sell them).
  I do have homeowner's insurance (since a disaster *could* wipe me out
without the insurance), and car insurance (but only because it is required
by law), but I refrain from getting applicance service contracts. I also
don't purchase lottery tickets. Why pay voluntary taxes?

If you can afford the consequences of disaster, don't buy insurance!

--Greg

P.S. Expected value = (sum over all possible outcomes) value of outcome *
     probablilty of that outcome. In the case of a lottery ticket, that
     would be the sum over all possible prizes (including losing!) of
     value of prize * odds of winning that prize. Since the vast majority
     of the tickets are losers (value of prize=0) it turns out that this
     sum will be less than the dollar cost of the ticket, which is where
     the state makes money.
-- 
{ucbvax!hplabs | allegra!nbires | decvax!noao | harpo!seismo | ihnp4!noao}
       		        !hao!woods

CSNET: woods@NCAR  ARPA: woods%ncar@CSNET-RELAY
   
     "...I may not be right but I've never been wrong
      It seldom turns out the way it does in the song..."