When you”re in the process of buying a shiny new smartphone and the sales rep asks if you”d like to add insurance, your gut reaction is probably to say yes when the image of your new toy becoming cracked and your wallet becoming significantly lighter comes to mind.
So is cell phone insurance worth the cost?
Advantages of Cell Phone Insurance Vs. Repair Out of Pocket
Loss/Theft Protection: Loss/Theft protection is certainly an advantage over out of pocket cell phone repair. But both of these are extremely unlikely to ever happen. So unlikely that if you weigh the monthly cost of insurance vs. the amount total replacement cost of lost/stolen phones over your lifetime, replacement will always be cheaper in the long run. If it wasn’t, the insurance companies wouldn’t offer it.
Non-Repairable Issues: Cell phones are extremely complex devices and although we like to think we’re pretty awesome at fixing them, there are problems that are just not repairable. That being said, only 3.9% of smartphones malfunction within the first year of ownership according to extended warranty company SquareTrade. You couldn’t get better odds. And even if you are part of that lucky 3.9%, all smartphones come with a 1 year manufacturer warranty that covers your smartphone.
Tip: There are many credit cards out there that will double your manufacturer warranty period for free when you purchase with your credit card. Check your cardholder agreement before calling it quits and buying a new phone.
Disadvantages of Cell Phone Insurance Vs. Repair Out of Pocket
1. Cost:
Almost everyone asks “How much?” when deciding whether to sign up for insurance, then skips over the rest of the unnecessarily long agreement form to sign at the bottom. $8-10 a month may seem like a steal when compared to the cost of replacement, but what wireless associates fail to mention is the deductible, which is typically between $99 and $200, per incident.
Day to day we meet with the people that make their way into our stores to ask for a repair quote. Throughout these conversations we’ve learned that a lot of the people asking for quotes actually have insurance, but experienced deductible sticker shock and decided to explore their options.
Repair Out of Pocket is significantly less expensive than the average deductible the vast majority of the time, which doesn’t even take the monthly fee into account.
A small percentage of the time the cost of repair is only marginally cheaper than the cost of the deductible ($10-$20), and a lot of our customers opt to go with filing an insurance claim because they feel if they don”t then the money they”ve spent on insurance so far will be wasted. This is a classic example of the sunk cost fallacy.
An even smaller percentage of the time the out of pocket repair cost exceeds the cost of the deductible, which may make repair seem expensive in comparison to insurance. When you add up the cost of the monthly fee, plus the cost of the deductible insurance is almost always more expensive.
2. Refurbished?
Another gem in the fine print is the fact that when you file an insurance claim, you will receive a new or certified like-new replacement. Certified Like-New = Refurbished, which means something was wrong with it at some point and could experience further issues. And the only way you”re going to get a New replacement is if you file a claim right after your phone is released (they won”t have any refurbished units yet).
When you get your phone repaired, you know what your phone has been through and you aren”t inheriting someone else’s problems.
3. Backing Up and Transferring Data
When filing an insurance claim for a replacement phone you have to go through the hassle of making sure all of your important info is backed up and transfer everything to the new phone. With repair, all of your data stays right where it belongs without any effort on your part.
Is Cell Phone Insurance Worth the Cost? Verdict: No.
Unless you’re the type of person who loses their phone or gets robbed ridiculously frequently, cell phone insurance is a terrible deal.
What should I do if I already have insurance?
Cancel it. The only exception being your deductible being significantly less than the out of pocket repair cost, in which case you should file a claim and get your replacement phone. Then cancel it. And make the smart choice and say “No, thanks.” the next time a sales rep tries selling you cell phone insurance.