Exploding Straightirons and Property Insurance

First lets start with the fun part: property insurance!  You may know it better as renter’s or homeowner’s insurance.  The idea is to insure yourself against an infrequent and catastrophic loss.  Most people paint a picture in their head of their house burning down.  So now that we know what property insurance is for, let move on to my…

Exploding Straightiron!

Here’s a little background for the gentlemen and the blissfully unaware: a straightiron is an implement similar to a curling iron that is used for straightening hair.  They’re very common.  Mine blew up this morning.  In my face.  (I’m unharmed, thank you for your concern.)  It was very upsetting – but that’s not the point of this story.  The point is that I needed to replace it lickety-split.  So I head out to my neighborhood discount store and find myself a replacement straightiron.  As I’m checking out my $29 straightiron, the clerk asks if I’d like to purchase a product gurantee for about $3.

Now let me ask you, does it make sense to buy property insurance for one year when the premium is ten percent of the cost of the item?  Especially if you can easliy afford to replace it?

When I put it like that, it doesn’t sound too smart, does it?  After all, my current renter’s policy covers $10,000 of posessions for about $150 per year.  That’s 1.5% of the value of the goods.  To extrapolate: the cost of the gurantee should’ve been about 43¢.  Now before all you comment about how gurantees aren’t priced that way – you’re right.  I’m trying to highlight how bad this deal is.

This is why you so frequently hear TV financial planners telling you to not buy the product gurantees for electronics and such.  It’s really expensive property insurance.

And in an ironic note, it turns out that the iron I bought already had a manufacturer’s warantee.  Not only was the store’s gurantee about 7 times too expensive, it was also completely useless.  Selling nothing at 7 times the price of something is profitable work – if you can get it.

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