Why Cellphone Insurance Is Not Worth the Cost

What's Hot

How to Cut the Cable TV Cord in 2017Family

8 Major Freebies and Discounts You Get With Amazon PrimeSave

Study: People Who Curse Are More HonestFamily

8 Creative Ways to Clear ClutterAround The House

15 Things You Should Always Buy at a Dollar StoreMore

Pay $2 and Get Unlimited Wendy’s Frosty Treats in 2017Family

5 Reasons to Shop for a Home in DecemberFamily

This Free Software Brings Old Laptops Back to LifeMore

Should You Donate to Wreaths Across America? A Lesson in Charitable GivingAround The House

6 Reasons Why Savers Are Sexier Than SpendersCredit & Debt

Resolutions 2017: Save More Money Using 5 Simple TricksCredit & Debt

10 Free Things That Used to Cost MoneyAround The House

7 New Year’s Resolutions to Make With Your KidsFamily

10 Simple Money Moves to Make Before the New YearFamily

The 3 Golden Rules of Lending to Friends and FamilyBorrow

After all, insurance is supposed to protect you from losses you can’t afford to replace.

Last month our cellphone contract finally expired. That made the Honeybee happy because it meant we could finally move to a new carrier with better coverage.

However, nobody was more excited than the kid with the fastest thumbs in the West, my son, Matthew, who no longer had to endure the supposed indignity of being stuck with an “uncool” Nokia Gravity phone because our new plan includes three iPhones. True, they’re older fourth-generation phones, but as far as my son was concerned, at least they weren’t made by Nokia.

Hey, don’t look at me. I’ve got nothing against Nokia. To me, a phone is a phone is a phone. Besides, I use a Blackberry that’s issued to me by my employer. But I digress.

Anyway, when signing up for the new contract, we were reminded by the sales associate that we had the option to insure the new iPhones. For $8 per phone per month, we’d get a replacement iPhone if ours were ever stolen, lost, run over by a car, or even accidentally submerged in a pool.

Sounds like a good deal, right?

Well, not necessarily. After looking into the dirty details, and then doing a little research and pulling out my trusty spreadsheet, I came to the conclusion that cellphone insurance can sometimes be a very iffy proposition.

To help illustrate, here is a breakdown of the cumulative monthly premiums I would have to pay for insuring one, two and three phones over the two-year contract period:

The point that immediately stood out was that it was going to cost me $576 in premiums to insure three phones for two years. And while our previous cellphone insurance plans had reasonable deductibles ranging from $0 to $25, the plan offered by our new carrier has a deductible of $140 per phone. That’s a lot of money, folks — especially considering that you can buy a brand-new version of the exact same iPhones my family has on eBay for between $189 and $240, depending on whether you want the phone only, or all the accessories too.

Another interesting tidbit is that our new carrier charges $80 to repair a cracked phone screen regardless of whether or not you have insurance.

With all that in mind, let’s consider a situation where I buy the cellphone insurance on the first day of my contract and then lose the phone the very next day. (Hey, it happens.) Let’s also assume I continue insuring my replacement phone for the full two years because I’m justifiably afraid of misfortune striking again at some point during the contract period.

Here are the cumulative expenditures incurred after insuring a single phone over the entire two-year period, and the resulting realized savings (or losses) had I instead chose to bypass the insurance altogether and pay full price for a new phone on eBay:

As you can see, getting a replacement phone in the first month makes the insurance a fairly good deal; at that point I’m ahead either $92 or $41, depending on whether or not the replacement phone came with the accessories.

Even so, as time wears on, the cellphone insurance quickly becomes a losing proposition. I’d save a minimum of $92 by simply avoiding it altogether, assuming I required fewer than two replacement phones over the entire two-year period.

In fact, for me to come out ahead with the cellphone insurance, I would eventually have to either:

  • Make two or more separate claims over the two-year contract period.
  • Stop carrying the insurance as soon as six months — or no later than 12 months — after initiating the contract (depending on the price of the replacement phone).

Admittedly, my kids haven’t had the best record when it comes to taking care of their cellphones. Over the past few years they’ve had more than a couple of “oops” moments. But they’re older now and significantly more responsible too. At least they should be.

The bottom line is that sometimes the potential benefits derived from insurance policies aren’t worth the premiums when compared with the actual risk.

In the end, I decided to throw caution to the wind and decline the cellphone insurance. Frankly, it was a no-brainer because the premiums and deductibles couldn’t compete with the relatively low cost of replacing the phones with money from my own pocket.

After all, insurance is supposed to protect you from losses you can’t afford to replace.

Now, if the wife and kids each end up having to replace their phones more than once over the next two years, I’ll obviously lament my decision.

I’m not worried though because, as the old saying goes, sometimes being too cautious can be the biggest risk of all. This is one of those times.

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!


Read Next: The 3 Golden Rules of Lending to Friends and Family

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 1,797 more deals!