Cell Phone Insurance: Worthwhile or Total Scam?
Recently I was in an Alltel store helping my mother purchase a new phone since her contract was up for renewal. The clerk at the counter asked her if she would like insurance for her cell-phone. The deal was that she could pay $4.95 per month and if her cell-phone was ever broken, lost, stolen, or dropped in a toilet, they would take care of it.
The idea sounded quite nice, and the clerk made it a point to tell us that he had purchased the insurance and thought it was a really good idea. He said it was a “smart move” and has saved him money in the past. The sales-pitch sounded quite nice, but after digging into the numbers, it’s not hard to figure out that cell phone insurance rarely makes sense.
Let’s first take a look at what you get for this $4.95 per month fee Alltel would be charging us. The contract stated there would be a $50 deductible. This means that if she were to lose or damage her phone and needed a new one, she would still have to pay at minimum $50.00 towards a new phone.
The contract also stated that the company could replace her current phone with a refurbished phone of the same or similar make and model. This means she could get a used, beaten-up phone from Alltel after paying $4.95 per month and a $50.00 deductible.
Since she had a pretty-basic Motorola Razr that could be replaced by purchasing a new one on eBay for around $75.00, her phone would need to break within a period of five months for this insurance to make sense, even then she wouldn’t be getting a new phone.
Most consumer advocacy groups, including Consumer Reports, agree that cell-phone insurance isn’t a good buy. In a recent MSNBC article, Consumer Reports Editor-At-Large Greg Daugherty, stated “We think it’s almost always a waste of money. You can insure every gadget in your life if you want these days. We think all this little insurance is just adding up to too much in many cases. People really ought to be focusing on the big risks”
There are also many “gotcha’s” that the phone companies will use which will make it so that they do not have to honor claims. Most of these contracts will say that “normal wear and tear” is not covered, and they often do not cover cracked screens. These contracts will also typically state there is no guarantee that you will get a phone with the same or similar features, so they could legally send you an old monochrome Nokia phone and be well within the bounds of their contractual obligations.
Any way that you put it, cell-phone insurance is almost never a good deal. There may be a few exceptions when it comes to individuals with expensive smart-phones that are in situations where their phone could be lost or stolen pretty easily, but by in large they are just not a good deal. When you purchase your next phone and the clerk asks you if you are interested in getting cell-phone insurance, respond with a resounding “No!”