The cost of mobile phones has now rivals computers. Unlike a laptop and certainly unlike a desktop, these devices get bounced around far more frequently. While the size of mobile phones keeps growing, they are still easy to lose or damage. It is because of this rough and tumble usage that it seems tempting to purchases protection to insure against a loss. This is the situation that I have recently found myself in as I fell for the latest deal and upgraded my outdated device and bit the bullet to add a line for my daughter. The risk that your kids lose or damage a phone seems even greater. So, is cell phone insurance a good idea or bad idea?
Managing risk is what I do for clients daily. Being someone who has chosen a career that over analyzes many situations, I thought this may be a good illustration of how these decisions are made when I am being sold something. Let’s assess the data and determine the breakeven. In this case we are only determining property loss which is finite, as opposed to a liability exposure which is far more challenging to cap.
- The cost of the phone is $499, in the case of the kid line.
- The risk depends somewhat on the person and I suppose to this end we are fortunate that there is no underwriting involved to determine clumsiness.
- The cost to transfer this risk includes the monthly premium, which is $17/month with my provider.
- If we are to retain the risk, I stand to lose $499 without coverage.
- Quick calculation, if I buy the protection plan offered then I have laid out the full cost of the phone by month 29 (the same month the device is paid off).
- Hmmm, sounds tempting. Yet this does not account for the deductible. Ah the fine print. The deductible for the device was not discussed but can be looked up through their third party vendor, here in the case of Verizon. The deductible in this case was $299 if lost and $29 for a cracked screen.
- This changes the breakeven and shortens the breakeven to just 11 months. If I saved just $17/month then I could buy a new phone within a year and if the kids don’t lose it before then that money could be used for other interests. If I purchase the protection then every payment after 11 months is paying more for the protection plan than the value of the device.
What even more interesting is that my new device is valued at $799 but carries the same deductible and the same monthly cost. Not much underwriting going on here. This pushes my final breakeven after the deductible out from 11 months to 29 months. While this sounds more attractive than the kid’s phone, I am looking at the big picture. I’ve had cell phones since 1996 and can’t recall ever losing one before. If I do lose one in the next 25 years, I can now rest easy that the one time expense was far better than an added fee of $17 per phone every single month.
As with many insurance questions, how you personally handle a risk is ultimately a matter of your personal risk tolerance. A big part of the role for an Insurance Advisor is to educate clients on the risks and options to manage them.
For those who are curious though, I’m now happier with my smaller cell phone bill.
