Here is my take on extended warranties in general, not specific to bikes.

Some real smart people have sat down and analyzed the ins and outs of selling you such a contract.

Let's take new cars. A Honda Civic for example. The Honda dealer wants to sell you a Honda branded extended warranty.

A whole staff of actuaries set up the terms of the policy. They studied a gazillion years of past Civic repair history. They know, on average, approximately what things break and when they tend to break. They can predict with reasonable certainty that 3 of every thousand Civics will have an automatic transmission failure before 50,000 miles, for example. They can predict how often window regulators fail, how long lived your air conditioning compressor likely is. It's all about probabilities.

So, based on all this information that they've accumulated since they've sold Civics (decades), they know a lot. They then craft an extended service contract that assumes liability for certain things over a certain period of time. They then figure out, on average, what they are likely to shell out honoring that contract. Let's say for the sake of discussion the number is $500, on average, that they figure they will spend on repairs, per car.

So their wholesale cost is $500. They want to make a profit, of course, so they aren't going to sell that contract to their customer, the dealer (not you yet) for $500. They will sell it to the dealer for $800, using a totally hypothetical number.

The dealer gets the "warranty" for $800, their cost. The finance guy then prices it at $1500 to the customer. That way, he leaves himself or herself some wiggle room if someone is interested but needs a little haggling to get the deal done. He can sell it at $1200 and the client thinks they are getting a deal and he still makes money.

The key thing to remember in my little scenario is that on average, when you look at the 100,000 Civics sold in a year, the average car will require $500 in repairs under an extended service contract. So, even the $1200 price isn't a real good deal.

There are always the outliers. Sure, a few Civics will have a huge failure and need $3000 of work. Those few people will get over so to speak, since they only spend $1200 for the warranty agreement. Overall, though, the average car will consume less than $500 in services in this scenario.

Believe me, some intelligent people who have access to a lot of data set up the warranty or service contract to be a no-lose for them. The house structured the deal. It's like gambling in Vegas in a way. The odds are with the house. Sure, it's possible to beat them, but they aren't worried about the one guy in ten that does. They make enough off the other 9 guys to more than make up for that.

Bottom line: If they were paying more out in claims than they were taking in via premiums, they wouldn't be selling it.

If you buy an extended service agreement on something, realize up front that the only reason you're doing it is for peace of mind. You don't want to worry about it, and paying an inflated price buys you peace of mind. Logically, not much reason to buy one.

One last thing. The more complicated and expensive something is to fix, the more tempting it would be to cover your behind and get a longer warranty on something. A jet aircraft, for instance, or a CT scanner are really expensive to fix and take a high level of expertise. So you might think about it on that basis. A car is less sophisticated than a jet. A bicycle is far less sophisticated than a car or a jet. A toaster is less sophisticated than a bike. The point is, ask yourself what your loss is if something fails out of warranty. If something on my Boeing Dreamliner fails, I may not have cash to fix that $135,000 part laying around. A toaster...eh, I'll just get a new one for $35 if mine breaks.



Just my 2c.