[ALERT] Gadget Insurance and Extended Warranties
I have never been a fan of insurance or extended warranties (both referred to as simply “insurance” henceforth) for electronic devices or even appliances. In fact, I make no bones about my disdain for these “protection rackets,” which are all heavily rigged in the seller’s favor. Here are the latest “innovations” in device insurance, and my thoughts on what’s wrong with them...
Are Extended Warranties and Device Insurance a Waste of Money?
First, let me explain why device insurance is a scam. Sellers of device insurance sell policies that do not provide any protection until the manufacturer’s warranty expires. Every device comes with at least a one-year warranty from the manufacturer. So the first 12 payments you make to a device insurer give you absolutely nothing!
Consumer Reports tells us that 57% of insurance-covered accidents that happen to electronic devices happen within the first year of ownership. So there is a better than even chance that your high-priced device insurance won’t be there when you need it.
Even when you are covered, “some restrictions apply.” AT&T’s so-called “comprehensive” Mobile Insurance plans have deductibles and maximum numbers of claims per year. These variables are calculated by beancounters who know, to the penny, how many claims to expect in a year and what the average cost of a claim is. The restrictions are cunningly set to ensure that you pay more than you can expect to lose. The difference is AT&T’s profit on device insurance; if it’s not enough, AT&T just raises the price as it did recently, to $7.99 per month from $6.99 for a single device
Most extended warranties provide that you must accept a refurbished replacement device if a replacement is granted. If after just 12 months, your iPhone was stolen, your (refurbished) replacement from Verizon would cost $320 in warranty plus deductible costs. But these phones can be found all over eBay for under well under $300. And you'll continue to pay monthly for that warranty, at least until your two-year contract expires.
Speaking of refurbished replacements, here’s a new scam that at least one insurer (Assurant) failed to get away with: counterfeit refurbished replacements! The long sordid story is here. The short story is: Melvin Williams called Assurant, T-mobile’s device insurer, when his daughter dropped her iPhone. Assurant charged him a $250 deductible to replace the damaged iPhone with a refurbished one.
Six months later, the replacement phone first stopped charging, then died completely. “That’s not one of our phones,” the Apple Store geniuses told Williams; a sharp eye for iPhones could spot the differences in the chassis, and when the fake phone was opened all the components were cheap imitations. Assurant, of course, claims this was an isolated aberration in its supply chain. But the company also admits it does not inspect the refurbished devices it buys from third-party refurbishers, so how would it know?
Complications and Considerations
Verizon is the best at making a simple subject complicated. Here is the simple summary of its simplest insurance plan: For basic phones and tablets, you pay $7/month per covered device. There's a $49-$199 non-refundable deductible per approved claim for devices lost, stolen, or damaged. You get two replacements in a 12-month period with an equipment maximum of $400 or $1500 per claim, depending on device. That's the large print -- and it gets more complicated from there.
Other big-ticket consumer electronics merchants invented the extended-warranty scam years ago. You cannot escape Best Buy with a simple phone charger without answering the question, “Do you want to add the extended warranty” thing that cost three bucks, delivered, on eBay. Of course, Best Buy charges $19.95 plus sales tax. And of course, as the price tag goes up, so does the cost of these "Protection Plans". As an example, plan on spending an extra $150 for two years of coverage on a big-screen HDTV. And after 24 months, they'll hit you up again to extend your coverage.
You can replace a cracked smartphone screen with a $30 repair kit, a hair dryer and a sharp blade. If you're just a little adventurous, you can fix almost anything with the help of YouTube. I've found parts and instructions online to fix my own washer, dryer, and lawn mower. Most components in your computer can be easily replaced without a soldering iron or a degree in electronics. If you know how to use a screwdriver and a socket wrench, and you're willing to do a bit of online research, chances are you can fix a lot of things on your own.
Some credit card companies offer extra warranty protection at no cost. American Express will automatically add one year to the original manufacturer’s warranty on any product that you purchase with it. Check with your card issuer to see if they provide a similar benefit.
The Bottom Line is YOUR Bottom Line
My advice: Don’t ever buy add-on insurance for any appliance or electronic device. If you're not a do-it-yourselfer, talk to your insurance agent about adding a rider to homeowner’s or renter’s insurance that covers all such devices. One reader tells me he got such a rider for a mere $27 per year with a $50 deductible per claim!
If you feel that you MUST purchase an extended warranty or protection plan, don't buy it from the service provider or store where the item is sold. A third-party like SquareTrade will provide similar coverage damage for a fraction of the price.
So am I wrong to call mobile gadget insurance, extended warranties and protection plans a scam? I don't think so. These things prey on your fear of the improbable. The likelihood that you'll come out ahead in the long run is very small. Factor in those confusing terms, exceptions, and deductibles, and you'll almost always end up paying more in the long run.
At the very least, device insurance is waste of money. Don’t buy it. Your thoughts on this topic are welcome. Post your comment or question below...
This article was posted by Bob Rankin on 11 May 2016
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Article information: AskBobRankin -- [ALERT] Gadget Insurance and Extended Warranties (Posted: 11 May 2016)
Copyright © 2005 - Bob Rankin - All Rights Reserved