Do Your Gadgets Need Insurance?

Insurance

Do Your Gadgets Need Insurance? It’s an inevitable question when you buy a new phone or computer and many other goods too: “Would you like to buy a protection plan?” If, like most of us, you’ve drop your phone, you could be tempt to buy.

Consumers are nearly 50% more likely to choose brands that offer insurance, according to a study by Mulberry, a seller of such plans. It’s a big reason major retailers like Amazon, Walmart and many more feature them so prominently.

But the fact that shoppers are purchasing these plans doesn’t necessarily mean they are worth it. There are other options, including insurance from third-parties and even your credit card. What’s more, the plans—which research shows are more profitable than gadgets themselves—may be a better deal for the companies that sell than for you.

Our back of the envelope math suggests Apple’s plans (one of the most comprehensive) might work out if there is a 1 in 3 chance you’ll break your phone—but that’s not necessarily likely to happen.

So is insuring your gadgets really a good idea? We parse five common options—including the option of doing nothing at all.

Option 1: Retailers’ insurance plans

Buying a plan from a retailer can be convenient. You do it at check out, and they promise to be easy to use. But these plans are more expensive than some other options, such as relying on your credit card or homeowners insurance (if those are a possibility).

These days nearly all big retailers offer customers some sort of insurance. Walmart offers its own plans, while Target sells them through the insurer Allstate, and Apple has AppleCare+ that extends the limited one-year warranty on its products. Amazon’s are mostly sell through Asurion, an independent company that specializes in extend warranties.

Retailer plans typically cost about a quarter of the price of the product. The ones sold by independent companies can be anywhere from $4 to $25 a month. But the biggest cost is often a deductible. Asurion charges deductibles from $99 to nearly $500. AppleCare+ charges deductibles from $29 to nearly $150.

All plans we reviewed, which cover mishaps such as broken screens, water damage, coffee spills and more, promised to make it easy to file a claim online in a few minutes. Asurion, the third-party site used by Amazon, says it sends 96% of replacement items the day after a claim is fill.

Some fine-print details to know: If your device is broken, you may have to mail it in. If it was lost or stolen (so you have nothing to turn in) you may be asked to provide a police report. For items that are still covered by a manufacturer’s warranty you may be required to file your claim through the manufacturer before the extended warranty takes effect. Or a company may work with you as the go-between with the manufacturer.

Option 2: Outside companies’ insurance plans

Retailers aren’t your only choice for insurance. You can also go to a third party, which can be good for anyone looking to insure multiple devices in one place.

Asurion sells a plan for most of the electronic devices in your home for $25 per month. It also offers just cellphone insurance coverage for $13 per month.

Discounts can be found if multiple people are covered. SquareTrade, a company owned by Allstate that specializes in protection plans, offers a phone protection plan for up to four phones, for example, that costs $19.99 per month, compared to $8.99 monthly for a single plan.

Claims can easily be fill online for the most common breakdowns. The sites we looked at require a few basic steps, and some assure quick replacements. When buying a policy, be sure to check when service begins. Asurion’s policies start on day 31 after you’ve signed up.

Option 3: Protection through your credit card

Some credit cards, especially premium ones, offer their own cellphone protection, generally if you use the card to pay your monthly bill.

For instance, eligible Wells Fargo credit cards cover $600 for damaged or stolen cellphones, up to a maximum of two claims per year. However, the protection does not cover phones that are simply loose. Certain American Express cards offer broadly similar protection, but with higher coverage of $800 per claim.

Of course, getting insurance through your credit card is most likely to help if you have already have a card that offers it—especially since many of the cards have their own annual fees.

Option 4: Your homeowners insurance

If you’re a homeowner, it may be worth checking your coverage details. Your cellphone may well be cover, although probably only in case of theft or fire.

For coverage for cracked screens and product failure from normal wear and tear, some insurers sell personal article insurance for 80 to 90 cents per $100, according to Byars Wright Insurance, an insurance agency with seven locations in Alabama. Some may only allow extra coverage for losses and physical damage from an accident, such as losing a phone or dropping it.

Option 5: Do nothing

If you don’t buy an extend warranty, you won’t be protect, unless your gadget is defective, and you can invoke the manufacturer’s warranty. Still the math behind the plans isn’t necessarily in your favor.

Consider an example with AppleCare+, one of the most comprehensive plans, which extends the one-year limited warranty on most Apple hardware and includes up to 90 days of technical support. It costs $80 to $200 for two years, depending which iPhone you have. AppleCare+ has an option to add theft and loss prevention for $70 more, and the extended warranty covers battery service or replacement.

Most new iPhones and similar smartphones cost around $1,000. AppleCare+ for an iPhone 13 Pro and 13 Pro Max is $199 for two years with a $99 deductible for accidental damage. That means you’re out $298 if your phone is damage and you file a claim. A rough calculation would suggest the plan could be worth it if you think there’s a one-in-three chance you’ll break your phone in the next two years.

Is that likely to happen?

Probably not: A 2018 Stanford University study found that people overestimate the likelihood of the product needing to be repair. A 5% objective failure probability was perceive as a 13% failure rate by consumers.

In fact, while the profit margin on home appliances and consumer electronics is typically about 20%, extended warranties sell for three to four times their expected cost to the retailer, according to research from Pennsylvania State University’s Smeal College of Business.

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