Think about all the bad things that can happen to a cellphone – getting cracked, being dropped in the toilet, ending up lost – and it might be tempting to buy cellphone insurance. But consumer advocates say that for most cellphone users, it’s not a good value.
“These programs – and all electronics warranties – are set up to make a profit for the insurer or warranty company.So, on average, that makes it a bad deal,” says Allan Keiter, president of MyRatePlan.com, a comparison-shopping site for cellphones and related services. “However, if you are risk-averse or prone to losing things, or need to have a smartphone but really can’t afford to replace it, then insurance could offer a psychological peace-of-mind benefit.”
Many consumers, though, don’t understand exactly what they’re getting when they sign up for cellphone insurance, experts say. Here are seven reasons not to buy this type of coverage.
1. Your monthly premiums add up.
“When you’re talking about a less expensive phone – not a smartphone – and people are paying $5 to $12 a month, you very quickly get to a point where you have paid more than a replacement phone is worth,” says Art Neill, executive director of New Media Rights, a nonprofit consumer group that has fielded complaints about cellphone insurance.
But even if you have an expensive smartphone, Neill says, insurance is not worth the cost. “The monthly payment plus the deductible gets really expensive really quick,” he says.
2. Your deductibles pile up.
Hefty deductibles – usually $50 to $200, depending on the policy and the phone – often catch consumers by surprise, Neill says.
“People don’t realize the amount of the deductible, how high it is,” Neill says.
That’s what happened to Shaunbay Pendelton, a 22-year-old from Virginia who, at $6.99 a month, has paid more than $500 in premiums over six years. When she recently started having problems with her phone, she found out she also would have to pay a deductible of up to $100. “I seriously regret getting insurance," Pendelton says, "and wish I had instead saved that money.”
3. You might get a refurbished phone as a replacement.
“That’s one of the key things people need to know – you don’t necessarily get a brand-new phone, and chances are that it will be a refurbished one,” says Linda Sherry, director of national priorities at Consumer Action, a nonprofit advocacy group.
Refurbished phones have several drawbacks, according to Keiter. “I don’t know that there’s a universal definition of ‘refurbished,’ so the quality may or may not be what one would expect with a new device. Also, the warranty is usually a lot shorter," Keiter says.
It might make more sense, Keiter says, to buy a refurbished phone on eBay if something has happened your existing phone.
4. You might get a different phone.
“A lot of plans don’t provide you with the exact same phone,” Neill says. “If you like your phone for a certain nuanced reason – it has a pull-out keyboard or you like the size of the screen or the feel of the keys – you might get a replacement phone that really isn’t equal at all, and you’re sort of stuck,” Neill says.
Sherry adds: “Policies typically state that replacement phones … may be a different brand, model or color than the old phone, and may not be compatible with your current accessories.”
5. You won’t be able to upgrade.
"The latest and greatest device you buy today will be almost an antique a year down the road,” Keiter says.
Also, he says, consumers who own pricey phones – for which insurance might make more sense – probably skew toward coveting the latest and greatest features. However, Neill says, "if you put a little money away each month instead, you could actually go out and get the exact device you want.”
6. You probably won't need the coverage.
Consumer advocates point out that many problems that crop up in the first year after a cellphone purchase are covered by the manufacturer’s warranty. After two years, many customers are eligible for a free or low-cost phone by signing another contract with the current carrier or switching to a different carrier.
According to Consumer Reports, which recommends against buying cellphone insurance, only 17 percent of consumers surveyed said they got a new phone because their old one broke, and only 3 percent because the phone was lost or stolen.
7. You might get scammed.
The owner of two cellphone stores in California was sentenced to pay restitution for filing more than 2,000 fraudulent claims with cellphone insurance company Asurion under the insurance policies of his cellphone customers. The customers had no idea that Asurion – which lost more than $1 million as a result of the fraudulent claims – was shipping "replacement" phones to mailboxes that the store owner had rented using a fake driver’s license.
“Avoiding scams -- that’s just one more reason to steer clear of the cellphone insurance,” Neill says.
When cellphone insurance may pay off
Nonetheless, some consumer advocates say cellphone insurance can make sense in some cases.
For example, Wendy Kurtz, who lives in Florida and runs a consulting business, says some keys on her Palm Centro stopped working after the warranty expired but before she was eligible for a discounted upgrade. She went through two refurbished replacement phones before she upgraded to a new brand and model.
“Given the wear and tear I put on a phone, I’ve decided the insurance is a wise investment for my business and for me,” Kurtz says.
Experts say consumers who do decide to buy insurance should read the fine print, do the math and weigh alternatives to the insurance offered through their cellphone carriers. For example, consider calling your auto or home insurance company to see whether it will offer a "personal articles" policy that would cover your cellphone -- coverage that could be "a fraction of the cost" of a traditional cellphone policy, Neill says.