Of course they are not handing out money. By investing the premiums they collect from insured parties, SquareTrade operates like a traditional insurance company. What they do is estimate how frequently a certain product or type of products requires warranty service, and the average cost of each warranty service. Multiply that out to get the overall expense of offering the warranty and then add on a normal profit margin to each warranty sold. The difference between them and electronics stores or other retailers, is that they aren’t trying to make up their low profit margins on pricing by selling way over-priced warranties. On average you lose with any type of insurance, but when the time comes most good insurance companies won't make every claim process a nightmare, otherwise how long do you think they will stay in business, or receive an A+ rating from the Better Business Bureau. You are correct that the PE is not a vital asset, but I think $32 is a reasonable price for three years of protection from a reputable insurance company.