Why Phone Insurance Is A Scam

Broken Cell Phone by chobacabraI have been helping a friend switch from Sprint to AT&T because I’m a huge fan of AT&T and it would reduce the cost of their plan considerably. It came down to a decision of whether to opt in for the $5 per month Wireless Phone Insurance. For the peace and mind, $5 a month doesn’t sound like much, but when we take a closer look at the numbers, things become a little clearer.

At $5 a month, that comes out to about $60 a year for phone insurance. For five lines, that’s $300 a year. Even if you lost or broke two phones in one year, $300 could buy you two nice phones.

So it comes out about even IF you somehow lose or break 40% of your phones. If something happens to a third phone, you may come out behind, and if you lose fewer than 2 phones, you probably come out ahead. Do you think you would lose or break 2 out of 5 phones in a single year? More?

Regardless of that decision, there’s another kicker: If you have insurance and something happens to your phone, each replacement phone is subject to a $50 or $125 non-refundable deductible per approved claim depending on the phone model. Under our previous assumption, the cost of losing two phones becomes somewhere between $400 and $550 to replace the phones. WOW, that makes the decision pretty definitive: phone insurance just isn’t worth it. Why not roll the dice, knowing that if you get your phone lost or stolen, you can just buy a new one with the money you save.

Still not convinced? Listen to this: All phones come with a manufacturer’s 12 month warranty. If your phone isn’t working properly (does not include lost or stolen phones, or phones with water damage), just call AT&T and they’ll ship you a new phone for free. If you’re responsible, chances are it’s better off going without the insurance and trusting yourself.

After the first 14-21 months, depending on your plan, you are eligible for an upgrade at a reduced cost. If your phones are still functioning after this period of time, save them! If for some reason, your phone doesn’t function, this can be your backup until you become eligible for another upgrade.

While it may be a gamble to pass on the phone insurance, it seems like a small one to me. What do you think?

6 Responses to Why Phone Insurance Is A Scam

  1. Yes, but are you considering the subsidized or unsubsidized prices of those phones. Unsubsidized phones can run upwards of $400/each, and you aren’t eligible for a subsidized upgrade until at least half way through your contact (most of the time, you have to have finished the 2 years). For example, the Nokia Surge is $230 w/o subsidy. That would use up the $300+$50 deductible right there if you broke two of those (and they’re free with a new 2 year contract).

    • I did a little research, and you’re right to an extent, but it depends on the phone. For the free phones that you would get when upgrading, you can probably get them for fairly cheap, under $100. Going up the scale to nicer phones, such as the LG Xenon, my current phone, it can be found for under $200. Blackberries can be a little more, but even then, I see that many are available for around $200 or less.

      Would you take your chances breaking or losing 40% of your phones in the first year? Once you pass the first 12 months, you would actually be saving $25 each month (for 5 lines) that you didn’t have to pay for a new phone. For those who are confident in themselves to not lose their phone, they could even buy a new phone every 12-18 months and come out way ahead!

      Plus, you could use the free upgrade and save it for emergencies, or you could use the upgrade and sell the phone!

  2. [...] “Why Phone Insurance is a Scam” – good article, but anecdotally, it works for me.  I got my first phone replaced (broken touchscreen) after complaining loudly and widely (but I didn’t have a phone for a few days).  I signed up for insurance after that incident since I had only had the phone for 6 months.  Since then, it’s broken twice, and been covered under the insurance (one replaced, one new screen).  (Un)lucky enough to have insurance work?  Maybe.  However, maybe the key to phone insurance is getting it for your new touchscreen phones and not your button ones?  For the record, I’ve now had the phone for 13 months. [...]

  3. We recently switched to MetroPCS, where you have to buy your phone for full price regardless (there’s no contract), and we’re still saving way more money than with these “subsidized” phones. Reason? Your plan costs are subsidizing them! I’d rather take care of my phones than be talked into getting a fancy BlackBerry just because it’s “Free.”

  4. Get a Wells Fargo credit card set up auto debit for your celly bill get basically the same insurance for free the phone company charges for