The one-year warranty on my MacBook Pro expired last week, presenting me with a choice: sign up for an extended warranty or live without it? I’ve never been an extended warranty kind of guy. They’re cash cows for the companies that sell them. Anything that is a cash cow for manufacturers and retailers is generally a poor deal for consumers.

According to the Washington Post, $15 billion in warranty premiums were charged to U.S. consumers in 2004, of which $7.5 billion went to the stores who sold them. About $3 billion was paid in claims against plans. Only $20 of every $100 spent on extended warranties was paid in claims.

The current issue of Consumer Reports further notes: “Most products don’t break during the first three or four years of ownership. If breakage does occur, the repair costs is typically similar to the warranty cost.”

What should you do if you want some sort of protection, but don’t want to pay the store? Self-insure. Consider paying yourself the warranty premiums. Reader Steven T. wrote to share this clever technique he uses to insure the things he buys:

I have an ING account. On their site, you can open any number of savings accounts, and you can give a nickname to each one. I created one called the “Warranty Scam Buster”. Anytime I’m faced with the option of getting extra warranty protection on an electronics purchase, I decline, but I write down the amount it would have cost, and then transfer that amount to this savings account. If in the future anything I bought needs to be replaced but isn’t protected, this fund can cover the cost. I’m earning interest on my money, and it’s not getting handed over to some huge company.

If Steven is disciplined and leaves all the money in his Warranty Scam Buster account, he’ll eventually develop a large enough pool to cover almost every problem. A general emergency fund can serve this function, too.

I don’t have a large emergency fund yet. So last week I did something I’ve never done before: I purchased an extended warranty. Because my livelihood depends on my computer’s health, a $349 business expense seemed worth the cost. I’m still not convinced it was the right decision, but it gives me peace of mind. In the future, though, I’ll self-insure with my own Warranty Scam Buster account.

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