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Extended warranties are insurance policies. Whether you buy one depends on your tolerance for risk and the "expected return" for the monies paid.
Some people wouldn't think of driving a car out of warranty, others are much more willing to take a chance. Self insuring (as MB DOC suggested) is one way to buy insurance with a little more risk, as the repair costs might exceed the premium paid.
In my case, I would not buy a $5K warranty. I also wouldn't buy an older R129, as the potential costs of major repairs is beyond my risk tolerance. On our 1998 C230, I bought the Signature Class MB extended warranty simply because it was cheap ($1400) and when comparing the price to my individual risk profile, the premium made sense.
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