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Archive for March, 2008

Cell Phone Insurance

You know what they say about insurance: it’s better to have it and not need it, than need it and wish you had it. While undeniably true when it comes to most types of insurance (house, auto, liability…), cell phone insurance is decidedly a different animal.

You can insure every gadget in your life if you want these days. Considering that a cell phone is the most personal gadget of them all, people understandably freak out when it gets lost. Indeed, the amount of personal and/or professional information in there can be quite staggering. In the same vein, if you lose your cell, you want to replace it as soon as possible. Couple that to the fact that every year more than four hundred thousand (400,000) cell phones are lost every year, and suddenly cell phone insurance sounds like THE wisest financial decision of them all.

After all, it’s only $4.99 a month and you’ll be covered if the phone is lost, drops in the toilet or is run over by a car. Your new phone does come with a manufacturer’s warranty, but that only covers equipment failure caused by a defect or malfunction. You’re out of luck if the phone is lost, stolen, or accidentally damaged. So you say yes. What do you get? The line of thinking is that should something happen to your phone, you’ll quickly have a replacement that will be “exactly the same as” or “similar to” the one you had.

Cell Phone Insurance Plans’ Deductible

The first thing you need to know is that there’s a deductible, something that many consumers aren’t aware of until they file a claim. In insurance terms, a deductible is the amount of money you have to pay for any damages before the insurance company will kick in with the rest. Cell phone insurance policies carry a $35 to $100 deductible, depending on the original cost of the phone, but it’s usually around $50. The typical cost of the premium over a year, for example, is around $60. Add the deductible, and you’ve paid over a hundred dollars. That’s basically the price of a new phone.

Cell Phone Insurance Plans’ Phone Replacement Options

In most cases, your replacement phone will not be new. It will be a reconditioned used phone (what the industry calls “refurbished”). While the sales brochure promises, “a replacement is just a call away,” the policy is often less generous. It says the company has the right to “repair or replace” the phone. That’s a big difference. And if they do send you a replacement, “colors, features and accessory compatibility are not guaranteed.” One of the things you need to check for on a refurbished replacement is to see if there are little dots showing water damage. Most cell phones have water-sensitive stickers inside the phone or on the battery that hold little dots that turn red if the phone gets wet.

Your Cell Phone Insurer Is A Third Party

Your insurance contract will be with a third party, not with your wireless carrier, and your coverage will take thirty days or longer to kick in. While the transaction takes place through your wireless company, you are actually buying the policy from an independent company. If your claim is rejected, the wireless company may not be able to help. Besides, other insurance may already cover you. You may already be paying for insurance to cover theft or loss through your auto policy or homeowner’s or renter’s policy. If you charged the purchase on a Visa, Mastercard, or Discover, you might be covered by your credit card company’s purchase protection benefit. So before buying a specific cell phone policy, make sure you’re not covered elsewhere, and figure out what circumstances the insurance won’t allow for.

Limitations And Exclusions Of Most Cell Phone Insurance Plans

These cell phone policies have numerous limitations and exclusions not spelled out in the sales material. For instance, most do not cover “normal wear and tear” or a cracked display “that does not affect the mechanical or electrical function of the unit. Some policies have a limit to the number of claims you can file for each year. Others will tell you to visit the website of the carrier for a list of “ineligible” devices. You may have to file a police report.

Peripherals Are An X-Factor When Choosing Cell Phone Insurance Coverage

Your peripherals may not fit. Even if the replacement phone is in good working condition, it may be a different model from the one you previously owned and that means your AC adapter, car charger, earpiece and other accessories might not work with it. “You may have to go out and buy new accessories for that phone. Those accessories could easily cost you more than the phone is worth,” says Kramer. These items could cost $50 to $100, pushing the overall cost of insuring and replacing your phone far beyond what it would cost to buy a new one.

Your Replacement Cell Phone May Be Of Lesser Value Than Your Deductible

In 2007, 2 of the 3 biggest cell phone insurers settled a class action lawsuit, agreeing to clearly disclose the terms of their policies and to pay more potentially as much as $60 million in compensation to millions of past customers. After looking at tens of thousands of phone company documents, attorney Adam Moskowitz, counsel for the plaintiffs, was surprised to learn that refurbished phones usually have a higher value than the deductible, but not always. Since 2004, as many as 15,000 people across the country were sent refurbished phones worth less than their deductible, according to court papers. They paid $50 and received phones worth $44 to $47.

You Probably Won’t Lose The Phone You’re Trying To Insure

Many people never lose or break their phones, so the money paid out for insurance is money down the drain. But what if you do? Try this instead of buying insurance: Every month you have the phone put the $5 premium money into a mayonnaise jar. If the phone is lost or stolen or completely breaks down, add the $50 or $100 that you would have paid for the deductible and go buy a new phone. You can go online and get some great deals on used cell phones. If you lose or damage yours, it may be cheaper to simply buy a new one out of your own pocket with the money you didn’t spend on insurance (remember the previous point about peripherals). And if nothing happens to your phone, at the end of the two years you have an extra $120.

What should you do?

Read The Fine Print Of The Cell Phone Insurance Contract You’re Considering

To be fair, the insurance cost might not be so bad if you were guaranteed the latest top-of-the-line phone as a replacement. However, most insurance contracts stipulate that consumers receive a phone that’s “comparable” to the one being replaced. When it comes to insurance, it’s the actual policy that counts, not what you see in the colorful brochure or hear in the sales pitch. Often there are caveats and it’s all buried in the fine print. So you should definitely read the fine print. Before making a decision, ask for a copy of the actual policy and see what it covers and what is excluded.

Give Yourself Some Time To Make A Decision

Say no to insurance coverage at the sales counter. Refer to an online wireless cell phone guide to get the phone that best suits your needs. Take some time to think about this purchase. You don’t have to make an impulse decision in the store. Cingular gives you 30 days. Verizon Wireless customers have 15 days to decide.

Bottom line.

There actually are some people for whom a cell phone insurance plan might be the best move, experts say. First, you should consider it if you have a very expensive phone. After all, as long as it’s included in the policy, the cost to insure a $500 phone is the same as a $50 phone. Next, teenagers may be less careful with their phones than adults, so they might be more likely to lose them or drop them. Likewise, for the person who travels a lot or handles his or her phone a lot throughout the day, insurance may be reasonable. It highly depends on the person’s individual circumstances and their patterns of where they take their phone and whether or not they tend to lose keys and other things.

Considering a $50 deductible; the $60 a year premium cost; the replacement most likely being a refurbished, different model requiring new peripherals, the replacement time frame, and probable coverage by other insurance policies, our bottom line is the following, based on your phone’s RETAIL price (not the subsidized price that comes with a 2-year plan):

Under $200: Don’t even bother. It’s simply not worth it

$200-$399: Too close to call. Remember to factor in the sometimes higher deductible.

Over $400: Probably a good idea, since these phones can be expensive to replace, even with reconditioned ones. Also, those cell phones sometimes carry specific (as in: more expensive) insurance plans.

Cell Phone Insurance

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