Gadget Insurance – Is It Worthwhile?

I was watching TV the other day and saw an advertisement for gadget insurance.  I thought to myself “Gadget insurance?  This must be new, I should write about it!”.

The commercial went through a few scenarios of a smart phone being lost or stolen which are two events that are covered under this gadget insurance policy.

I wanted to know more so I went to the company website, got a quote and started looking at the numbers and the policy wording.  This particular company offers their policy in the United States and United Kingdom, Canadians are not eligible for coverage but I’m sure it’s coming.

Related: 6 Reasons Not To Buy Extended Warranties

There are a couple of companies that offer this service so there may be more options to choose from.

Gadget Insurance: The Numbers

To cost to insure a 32GB iPhone 5 is $8 per month, this sounds like a reasonable price.  For only $8 per month I can have the peace of mind knowing that if my phone gets stolen I can have it replaced.  Sounds like a great idea, but as always, we need to review the details.

Only when you get further into the application process does the company reveal that there is a $120 deductible that needs to be paid in the event you make a claim.  This additional fee may make this insurance offering less attractive.

Below I’ve put together a table with the value of an iPhone 5, the cost of insurance and the deductible.  It shows 3 different scenarios for making a claim at the end of the 1st, 2nd or 3rd year of ownership of the phone.

Year you file a claim in Year 1 Year 2 Year 3
Value of Phone  $800  $475  $325
Insurance cost ($8/month)  $96  $ 96  $96
Deductible  $120  $120  $120
Total cost of insurance  $216  $312  $408
Insurance saved you  $584  $163 -$83

Related: Cell Phone Shopping

So, if something happens to your phone in the first year of ownership and you file a claim, you’ll come out on top and save yourself $584 that you otherwise would have had to pay to replace your iPhone 5.

Look what happens in the 2nd year though, you would only end up saving $163, that’s a big drop from $584.  By the end of the 2nd year you will have paid $192 in insurance plus the deductible.

The other variable to take into consideration is the depreciation of the phone.  Since a new iPhone is released each year, the value of last year’s model decreases significantly.  The value of the phone in year 2 and 3 is based on average selling prices I found on Craigslist.

While insurance will save you some money in year one and two, year 3 is a different story.  If you were to file a claim for your lost or stolen phone a few months into your 3rd year, you would be losing money!  The cost of the insurance over 3 years plus the deductible would be more than the resale value of the phone.

The company has another option to prepay the premiums in advance to save money.  In the case of a 32GB iPhone 5, prepaying would cost $226 for 3 years of coverage.  Here’s the same table as above with this taken into account.

Year you file a claim in Year 1 Year 2 Year 3
Value of Phone $800 $475 $325
Insurance cost 1 time

$226

Deductible $120 $120 $120
Total cost of insurance

$346

Insurance saved you $454 $129 -$21

Prepaying seems to be a better idea but keep in mind that the company markets their product based on the low $8 per month rate, not prepaying!

Related: The Cost Of Keeping Up With The iPhone

Policy Wording

Taking a look through the policy yielded some other interesting nuggets.  First off, in order to make a claim if your phone is stolen, you need to report the theft to the police.

In the event of covered Loss due to Theft, vandalism or malicious mischief, a report of such Loss must be made:

1.  To the applicable police authority with jurisdiction; and
2.  As soon as reasonably possible.

Secondly, the insurer reserves the right to repair the product first and if it can’t be repaired they will then replace it.  Finally, the insurer only commits to replacing the insured phone within 30 days.

If the Insured Product suffers a covered Loss, We will, at Our option, repair or replace the Insured Product within thirty (30) days after:

1.  We reach agreement with You;
2.  Entry of a final judgment; or
3.  The ruling of an arbitration award.

The Verdict On Gadget Insurance

While insurance for your phone might sound good to start with, when we dive into the numbers and policy wording the service loses its appeal.  The policy is only really worth it financially if you lose your device in the first 12-18 months or so.

Related: Health And Dental Insurance – Not Really Insurance

In order to file a claim you might need to file a police report and then get the device repaired or wait to have a new one shipped to you.  Since smart phones are such critical devices for many people, could you even wait 2-4 weeks to get a replacement?

Insurance for an expensive car or for your home are excellent options but insuring a depreciating consumer device is not.  Remember that for many people the phone itself isn’t what’s important, it’s the photos, videos and emails that are on it.

The best way to “insure” your phone is to put it in a good case, backup the data on it and never leave it unattended!

For some added comedic value, here’s item 17 from the list of what situations are not covered by the policy:

17.  War, including:
a. undeclared or civil war;
b. insurrection, rebellion, revolution;
c. warlike act of a military force, including action in hindering or defending against an actual or expected attack, by government, sovereign or other authority using military personnel or other agents;
d. terrorism;

Discharge of a nuclear weapon will be deemed a warlike act even if accidental.  

You’ve got to love insurance companies, they think of every possibility!

Andrew Martin is a personal finance and investing blogger from Toronto, Ontario with a background in technology and a passion for travel.  His blog, She Thinks I’m Cheap aims to help Canadians make more money by sharing facts, stories and advice.


5 Responses to Gadget Insurance – Is It Worthwhile?

  1. Yikes! I think if I had a smart phone and it was critical for my job/life, my “gadget insurance” would be to have enough money in a savings account to pay for a replacement. Thanks for an enlightening comparison.

    I’m still trying to imagine a scenario where my phone is destroyed by a nuclear weapon but I somehow survive. Huh.

  2. Verizon insurance has much better terms than this, at least in the US. For smart phones I think it’s $7/month, $100 deductible and pretty much immediate replacement. I’m certain they’re undercharging for expensive phones and subsidizing it from the premiums of those with cheap phones. I carry it whenever I have an expensive phone and drop it if I keep a phone for a long time. If I’ve got a phone with an out-of-pocket cost of $600, I only have to damage one about every six years to break even. I’m harder on phones than that unfortunately.

  3. I prefer to buy a very secure phone (i.e. BlackBerry) and protect it from damage (e.g. OtterBox). If people stopped leaving their phones unattended, theft would be significantly reduced.

    The only risk that can’t be significantly mitigated is a flaw in the software/hardware. Manufacturers should be obligated to provide a warranty that extends to the entire term for which a person is under contract. The arbitration clause makes their warranty a joke. Make sure to add tax. At $8 a month, that’d be about $110 a year in Ontario. $330 per phone, per contract? No thanks.

    Glenn Cooke talks about only insuring things that pose a potential catastrophic, financial loss. Losing a $500 phone would suck but it’s not catastrophic. If it is, then you should NOT have a smartphone anyway!

  4. The real reason you shouldn’t be buying this stuff is because it isn’t ‘insurance’. You should insure stuff that the loss of would cause you big problems. You shouldn’t insure stuff that the loss of would cause you minor financial discomfort, like the loss of a $500 iphone. For those small losses, self-insure. i.e. keep the money in your pockets and drop the $500 if you lose the phone.

    Plus, if you lose the phone,you’ll have learned a $500 lesson ‘take better care of your phone’. Or perhaps it’s ‘buy an android phone instead of an apple, because who’d steal an android?’.

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