Consumer service plans: Worth the cost?
By Aviya Kushner • Bankrate.com

If you've shopped for a computer lately, you've probably heard the hard sell. "Whatever you do," the sales guy says, "sign up for our service plan."

Then you do the math. Most plans run between $249 and $299 for two or three years of service. For some laptops, that nearly doubles the cost, and for a $2200 machine, you're adding more than 10 percent. The big question is: Is it worth it?

Consumers and computer experts have different takes on the matter. So the quick answer is: It depends. And part of that "depends" is your situation: How much you'll lose if you're computerless for a while, and how good your particular service plan really is.

The other part is what your manufacturer's warranty covers exactly, and whether you need anything else.

It's not easy to hem and haw when it comes to service plans because some vendors insist that you buy the service plan on the day you buy the computer in order to be eligible.

But they usually have a return policy on the plan, too. So, if you're forced to make a decision fast, you do have that in the 14-day or 30-day loophole.

Before the return window runs out, though, it pays to scrutinize the fine print of your plan and make an informed decision.

What service plans are
"It's like any insurance policy," says Doug Jones, a professor of computer science at the University of Iowa. "The insurer wants to make money selling the insurance, and you can bet that they do on that $249 plan.

"On the other hand, you want the protection. If your machine breaks, you're going to be out far more, not just in the cost of replacement, but in the inconvenience and hassle," Jones says.

He explains the math behind the plan.

"Assuming that the service plan is offered on a not-for-profit basis, which is very unlikely, and assuming that they simply give you a new machine instead of trying to fix anything that breaks, which is not uncommon," Jones says, "you can figure that a service plan costing $250 on a machine costing $1,000 is a prediction that one in four of those machines will require replacement."

The numbers are actually skewed toward computer vendors, which is no surprise.

"My understanding is that the normal failure rate for consumer electronics is closer to one in six," Jones says.

Consider your product
Some products tend to break down more often, so consider that before you sign up.

"Large-screen, flat-panel monitors seem to have unusually high failure rates, with some models pushing 40 percent failures in the first year," Jones says, "while hard drives are getting very good, with failure rates down near 2 percent for the drives in desktops.

"Of course, most failures occur during the normal warranty period, and you don't need to buy the service plan to have those ones covered."

The major downside to service plans is that they don't cover negligence, Jones says.