I recently received my “final notice” for the cell phone insurance “open season” from my cell phone provider. My cell phone is over two years old now, so I won’t be needing this insurance. If something happens to my phone, I can just as easily go buy a new phone under a new contract and pay the discounted upgrade fee instead of the full price for a new phone. And that is a good thing for me, since buying an unsubsidized phone can cost several hundred dollars, or in the case of a new iPhone, around $649 (up to $849 for the iPhone 5 64GB model). That is quite a bit to pay if you aren’t expecting to need to replace your phone!
Once upon a time, cell phone insurance plans came under fire for being overly expensive. But now I’m not so sure. Many smartphones are essentially pocket computers and are priced accordingly. In fact, buying an unsubsidized iPhone is comparable to or more expensive than buying an iPad. For fun, I decided to run the numbers to see if cell phone insurance is a good deal.
What Does Cell Phone Insurance Cover?
Each policy contains different fine print. Let’s take a look at the policy offered by Sprint (the formatting is mine to make it easier to see how much this insurance costs and what it actually covers):
Cost: $8/$11 a month per device. Monthly charge dependent on device model. Non-Refundable Deductible: $50 or $100/$150 or $200 depending on model. Deductible applies to claims for loss, theft, physical or liquid damage. Covered Perils: Loss, theft, physical or liquid damage and mechanical or electrical failures due to defect or normal wear and tear, as well as routine maintenance. Replacement Equipment: Replacement equipment may be new or a Sprint certified remanufactured device and/or a comparable model. Remanufactured equipment provided by CNA as replacement equipment meets Sprint’s strict quality standards and is Sprint certified. Claim Limits: Three claims within any consecutive 12 months with a maximum replacement value of $1,500 per claim. Claim limits apply to claims of loss, theft, or physical or liquid damage. Cancellation Policy: You may cancel your optional coverage at any time and receive a prorated refund/credit of your unearned premium/fee. Total Equipment Protection App: Can only be used on a compatible device. Technical limitations may prevent certain features from working on all devices. Check the website for a complete list.
How do the Numbers Work Out?
The ad isn’t very clear on which models qualify for the $8 a month plan, but my guess is most of the premium models are priced at $11 per month, and probably on the higher end for the deductible as well. $11 a month for a year equals $132. So let’s say you have an expensive phone and something happens to it 12 months into your contract. You would be out the $132 for the insurance, plus a $200 deductible, for a total of $332.
That would be a great deal for a new iPhone, which can cost up to $849. The problem is that you don’t know if you are getting a new phone, or a refurbished phone. The Sprint contract states it may be a new or certified remanufactured device, or a comparable model. I’m sure they try to replace the exact model, but there may be times when inventory is low or the phones aren’t manufactured any loner and they need to substitute the model. The point is, I don’t know, and it seems as though they can’t promise you which model you will receive.
Is Cell Phone Insurance a Ripoff?
A couple years ago, I would have told people not to buy cell phone insurance. It was over-priced for most phones since the replacement cost wasn’t nearly as much as people paid in premiums and deductibles. Dropping insurance and other add-ons is a great way to lower your cell phone bill. But today’s smartphones are much more expensive. So I will go on record as saying I don’t believe cell phone insurance is a ripoff. But it may not be the best deal either.
Here is why:
Most cell phone companies allow you to upgrade 12 months into your plan, though you will usually pay a little more for the phone. For example, you may pay $300 instead of $200 for renewing your contract outside of the normal cycle. If you are already past the 12 month mark on your contract, the insurance is less attractive. The insurance plan also doesn’t work out well if you have a less expensive phone, or don’t mind buying another phone on the secondhand market. (There are dozens of places you can buy new and refurbished phones for less than the carriers offer).
In the end, you will need to run the numbers and see if it works for you, or if you are better off self-insuring your phone. After all, that is what insurance is for, right? Shifting the risk to someone else. If you can live with the risk of having to buy a new phone and can afford to spend the money out of pocket, then you can probably do without the added cost of the insurance, saving you money for sure. If buying a new phone at full price is too much, then the insurance may be a good idea.
If you decide to buy the cell phone insurance, you might consider canceling your plan once you reach the 12 month mark if you are eligible for a discounted upgrade. That way you can buy the newest model phone which is probably a better phone than you currently have, and it would only cost slightly more than paying your deductible.