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Given that apple usually bring out about 7 new devices within a 2 year period, I'm surprised they offer it for so long given the fact that they need to keep producing the older models in order to keep up with replacement demand. I highly suspect someone is keeping a supply chain open in China solely for this purpose, even though you can't buy brand new ones out the box for your generation. That's where AppleCare comes in.
Their phone support for the AppleCare is excellent, they talk to you like a human, they answer your questions without resorting to jargon nonsense and assist you in a polite and friendly manner. I spoke to Americans on the phone as well as Brits who all seemed to offer support diligently and often resolved my problems within minutes.
In the pack you get a billion booklets and bits of paper that I'm never going to read, and finally, a sticker with a small print code on. This is all you need. You know how Microsoft Points and Xbox Live codes come in elaborate packaging with incredible amounts of nonsense and promotional material, and you just throw it all away because they only thing you bought it for was the small print code on the back of the redeemable card? Well that's the applecare pack, but much, much worse with more clutter. Good news though, it is all paper and therefore, recyclable.
To set up you just need to unwrap the packaging, sift through the millions of leaflets, instruction books, disclaimers, warranty notices, and usual palaver before getting to the activation code on the back, which is a sticker with about 4 billion numbers and letters. Simply activate this online and within seconds, your device is covered. I found it was easy to do this, but hard to find my way around the apple care help pages on the Apple website, since they seem to have a separate page for absolutely everything. Pages aren't that long, so while it reduces clutter, it also means you have to do stuff the long way round.
The replacement or repair service can be done in store and you get an email to inform you that your device is covered immediately from the moment you activate. You can then take your device to an Apple Store if it breaks down in future and the staff will happily repair or replace it. I have had several iPads, all replacements and no repairs made. They just accept your iPad as damaged if it's through wear and tear, and within minutes they give you a new one free of charge. First gen tech is always glitchy, mind you, my third gen iPad is not the best...
This is always expensive on the Apple store but you can find "unwanted gifts" of this stuff floating around somewhere on eBay or Amazon. They're all new and unopened and all a lot cheaper than from the official Apple website.
Overall a great service, I highly recommend this as insurance, because their repair or replacement service out of warranty, is very costly indeed.
I purchased AppleCare with my Macbook as I was paranoid about my £1200 investment breaking, it cost around £140 at the time around 2 years ago, and it extends the 1 year warranty to 3 years. Bare in mind that if you purchase AppleCare after the purchase of the mac it does not add 3 years from when you buy the protection it gives you protection until 3 years after the purchase of the Mac!
The normal Apple protection that comes with every mac as standard lasts one year and included phone support and product repair, this is the same as the following two years gained by getting AppleCare. I have found this service brilliant and I have use it 3 times over the past 2 years. The first time was my own fault, I blew the speakers up and after a quick call to Apple and some preliminary checks over the phone, they picked up the laptop and got it repaired by one of there local repairers...I had it back in just over week fully repaired, they also give you a new motherboard every time it gets sent back with no loss of data. They have been truly brilliant and I would recommend AppleCare to any Mac owner.