SCAM ALERT: Mobile Device Insurance and Extended Warranties

Category: Finance , Gadgets

Conventional 'wisdom' gives many people the false impression that insurance is always necessary and prudent. Corporations prey upon this vulnerability to sell insurance against all manner of catastrophes that have as much likelihood as a geek getting a date with Selena Gomez. It's especially irksome in the realm of smartphones, tablets, laptops and TVs. Here's why you should say NO to paying extra for gadget insurance...

Should You Buy a Protection Plan?

We live in a society where everyone wants someone else to bear the risks of their actions. Bizarre lawsuits provide many examples. Not only do people desperately clamor for insurance, they are required to have it in a growing number of cases. (Obamacare, anyone?)

A child can hardly open a sidewalk lemonade stand without a million bucks worth of liability insurance. Local governments cannot prohibit citizen protest gatherings but they sure do discourage them with expensive liability insurance requirements.

And it doesn't end there. It's become common and expected to get an "upsell" for insurance, extended warranties or protection plans when you buy a product or service. Take CenturyLink, formerly Qwest Communications. Order DSL Internet service and you will be offered the precious opportunity to pay an additional ten bucks a month - $120 per year – to insure “everything you have connected to CenturyLink Internet” against every conceivable calamity; full replacement value, complete peace of mind!

SCAM: Mobile Device Insurance and Extended Warranties

Damage from power surges or lightning strikes, sure; but a sales rep also said “yes” when asked if this plan covered dropping an iPad while taking a bath. The ludicrous promises didn’t stop until it was suggested that an old car might be connected to the Internet and run into a bridge buttress.

AT&T offers similar, $6.99/month insurance for devices connected to its network, but they make things more complicated. The monthly charge applies to each “line” enrolled on the customer’s account. Furthermore, there are different deductibles for different classes of device: $50 for a phone, $125 for a netbook, $150 for a tablet, and so on. Note that the size of the deductible seems to bear no relationship to the price of the device; a lot of phones cost twice the price of any netbook. It’s as if a bunch of lawyers and actuaries sat around a conference table saying, “Yeah, that sounds good, let’s see who goes for it.”

Verizon, which is infamous for making every simple thing as complicated as a face transplant, insures individual devices. Your covered device is protected, if a) the manufacturer’s warranty has expired; b) it’s not your third or greater “oopsie” in the past 12 months; and the claim is for a lost or stolen device or one that has a previously undiscovered mechanical or electrical defect. At least, I think that’s what Verizon is saying in its stupifyingly complex “clarification” of its Total Equipment Coverage Program that “combines the benefits of Asurion’s Wireless Phone Protection and the Verizon Wireless Extended Warranty program.”

Then there are varying premiums and deductibles for each type of device. Smartphones – except Apple iPhones – are charged $8/month with a $99 deductible. iPhone owners get to pay more (because they’re used to it) and Verizon even specifies which iPhone models and memory capacities are covered. A warranty against loss, theft or damage for a 32GB iPhone 4/4s will cost $10/month with a whopping $200 deductible.

Let's Do the Math...

If after just 12 months, your iPhone 4 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 $200. And you'll continue to pay that $10/month, at least until your two-year contract expires.

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.

But you know what? Insurance is not worth its cost, more often than it is. Consumer Reports says that 57 per cent of repairs to electronic devices occur within the first year, when a manufacturer’s warranty is in effect and an extended warranty is not. That’s right, the first year’s worth of premiums you pay buys you exactly nothing!

My advice: Don’t ever buy add-on insurance for any electronic device. Instead, 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!

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.

Your thoughts on this topic are welcome. Post your comment or question below...

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Most recent comments on "SCAM ALERT: Mobile Device Insurance and Extended Warranties"

(See all 33 comments for this article.)

Posted by:

01 Nov 2013

I agree with you Heather. Your response to Bart is right. If you want to buy extended warranties for your electronics, then do so. If you don't, that is your decision.

The same could be said for having health insurance. It should be up to the individual, if you want to pay for health insurance. I believe in personal responsibility. If you want to have habits that are detrimental to your health, then that is your problem; you are responsible for your own health.

Posted by:

01 Nov 2013

When did this useful newsletter turn into a political soapbox? There are places to spew the hate and misinformation and this is NOT that place. Thank you Bob for all your help with all the information you provide.

Posted by:

Digital Artist
02 Nov 2013

While we're at it, why not discuss gun control?

Posted by:

Pete Laberge
02 Nov 2013

Well, sometimes one can win out...

A couple of years ago, I bought an Epson Printer at Staples. And spare ink, too. Came to something like $300 including the taxes. So they offered me a deluxe ins (promo offer) that covered everything for 2 years. That cost about $30. Well, 1 year and 1 month later, I came to print... and the poor thing made a pitiful noise, and puked all its ink all over my desk. (What a MESS!) It was dead, Jim. They could not replace it as that model was no longer being made! WHY? It was a great machine! So they paid me back every dime, buying even my ink supplies. I got a "store credit card". They were very kind, sympathetic, and polite. There was little argument. I later used the card to buy some laser ink for Lesley, and then later bought a brand new HP printer and spare ink for myself, with the balance. True, the new printer cost less. But it still prints.

Another time, I bought a small rechargeable vacuum at another store. Spent $20 on a replacement policy (also a promo). The silly thing cost only $30. When it died 6 months later, they took it back, and plugged it in to test it. The whip who did not believe me got a nice shock from the shorted out thing, too. Good for him. But they ended giving me a $70 vacuum, that still runs 8 years later, and was at least 3x better than the dead one. They did give me an argument though. Well sure, I was getting $70 for $50. NOT MY FAULT, I said.

That being said, I do not buy them all the time. But those 2 times I won out. I also once spent $2000 in a car warranty. The tranny and some other repairs came to $4000. But on another car, I spent $1400, and got zilch out of that warranty. Although, I figure I'm still ahead by $600.

Another car, I spent another $2000 on a policy. A freak engine malfunction, and $3300 later, I argued it should be warrantied. Oh, I did get a little static. But won. I did have to pay a $110 "service fee" though. But I am still over a grand in the green, there. Plus with the policy I got 2 free oil changes! Not that an oil change is worth that much. Still better than a boot in the ribs, as they say.

On other purchases I eschewed warranties... I am still alive. The world did not end.

Sometimes you win, sometimes you lose, sometimes you break even.

Posted by:

02 Nov 2013

I never buy any insurance unless the law demands it. It never pays, I prefer to keep a rainy day fund to replace anything that gets damaged. However, when buying a Nintendo gaming device for my mentally disabled daughter, I was offered a plan. I explained the certainty that it would be claimed upon withing the 3 year time (my daughter is harsh on such equipment). The salesman said it didnt matter, they would honour the agreement. So far we have had 3 new replacements.

Posted by:

02 Nov 2013

all the stuff that we purchase over 20.00 we want ins on...I have done it like washer,etc. never use any of learning as I get stupid I have been..they try to get u...god help us to b a little smarter..

Posted by:

02 Nov 2013

How about we skip the politics and stick to the subject.

I personally rarely get any type of "extended" coverage over and above that the manufacturer provides plus whatever "extended" coverage I get by paying with a credit card (which yes, I pay off every month much to the annoyance of the issuer...). Like Bob said, and supported by Consumer Reports and others, things usually go wrong right off the bat when the manufacturer's coverage is still in effect. I can't recall a time when I would have benefited from any "extended" coverage. Besides, by the time something wears out or breaks, the replacements are usually better and cheaper anyway, and often made by someone other than the company of the item that broke, so I may find an even better deal. If I bought an extended warranty on an HP printer and it breaks, I may not want a newer relacement HP that could be a proven turkey, but maybe a Brother or Dell that is far better, and for about the same dollars that I paid for the coverage in the first place.

My opinions.

Posted by:

03 Nov 2013

Personally, I never buy any sort of Extended Warranty (whether it be electronics, cars, boats etc.) purely on the basis that if you are buying a brand new well-known brand item & it has reached the point of sale, then all should already have passed the factory-based checks. Have a bit more confidence in the supplier - they want to keep you as a customer.

Sure, you might be the unlucky person that gets the one in a batch of millions that is a 'dud', but that will be evident long before the standard warranty expires.

As Bob says, as well as being costly & having a variety of deductibles, people tend to ignore the Terms of Condition & Exclusion Clause (that the sales-person fails to highlight!)

Let's face it, if your stupid enough to be texting while in the bathtub, on a roller-coaster, driving etc, then you deserve to be out-of-pocket.

Posted by:

Jim Cauthen
04 Nov 2013

Thanks for all your good advice. Keep up the good work.
I am the exception to the rule. I recently bought a Panasonic 50 inch Plasma TV. I loved it. 16 months later, it fried itself. Of course the warranty was 12 months & I did not buy the extended warranty. So what. I figured 4 months past the warranty was nothing and Panasonic would pro-rate some kind of warranty work. I was wrong, again. Panasonic was hostile and basically said "tough sh*t". Best Buy (Worst Buy), where I bought it, was the same. Too bad! for me. Both Panasonic and Best Buy have lost a loyal customer forever. Now I'm watching my ancient tube TV which still works great after 20 years. I've started reading more, which is a good thing. TV is 90% re-runs and 50% commercials.

Posted by:

04 Nov 2013

There was a time when all of the warranties on laptops also covered batteries that dropped below 50% of their capacity. The price of the warranty was about the same (often even less!) as replacing the battery. So, I would buy the warranty thinking in my mind I was just pre-paying for a new battery and getting anything else attached as a dessert! But, the last time I bought a laptop a couple of years ago, they had changed that policy:-( But I would look through the details just in case.

Posted by:

Bob Levy
05 Nov 2013

1. I have never bought a used car. and always buy the extended coverage bumper to bumper and NEVER regretted the investment.
2. Normal personal experience is the coverage expires 1 day to 1 week before It is needed (again). That maybe the BOB law.
3. I purchased the Note 2 last year (ATT 2 year) with the insurance. (Bye Bye Blackberry - finally)
4. In August I dropped the phone and shattered the screen. I researched replacing myself and decided no. Went to local ATT store where I purchased phone and was told to call Asurion. That was on a Sunday and by Tuesday I had a new phone. There was a $200 deductible which I thought was very high. The response is that a "new" unlocked phone would have set me back $700. I thought I could switch to another vendor, but with the 2 year contract that made no sense.

I think I made a wise $6.95/mo investment.

Posted by:

06 Nov 2013

I purchased an extended warranty on my smartphone that would cover the last 2 years on my 3 year contract. At the end of the second year, my smartphone started having issues that couldn't be attributed to anything I had done, so I called only to be told that there's nothing they can do... that phone is obsolete so they would give me a new phone and new 3 year contract without penalty. I said I didn't want to get into another 3 year contract at this time, I just want the warranty I paid $150.00 for honored, and they said, then sorry, there's nothing they could do. I wanted a new phone but to continue on with the rest of my 3 year contract or at least pay the same for the next year as I currently was and the last 2 years of the new contract at the new price, and they said no... it would all have to be at new contract prices. My contract is at an excellent price and the new one would have been quite a bit more money. I asked for a refund of what I paid for my warranty if they weren't going to honor it, and they said, sorry, thats not their policy. After arguing with them and threatening to phone a number of places to report their scam, they did give me $100 back. So beware when technology becomes obsolete so quickly. This was a major mobile phone carrier that refused to honor the warranty.

Posted by:

Daniel Wiener
08 Nov 2013

While I normally don't buy insurance, I felt that it was a reasonable precaution for our smart phones. It's all too easy to drop a phone and break it, and then you're out several hundred dollars for a replacement (which you must have, because you'll still be paying monthly charges for the remaining time on your contract). Still, the $11/month insurance from Sprint was adding up, what with three Galaxy S3's for my two daughters and my wife, and a Galaxy S4 for myself.

This story has a tragic interlude, when one daughter died of cancer in July. After I informed Sprint of the death, they extended their condolences and canceled the remainder of her contract. That left us with a spare phone. I could have sold it for a modest amount ($150 to $200 on eBay), but instead decided to keep it and cancel the insurance on our remaining three phones. The spare phone is our "insurance" in case any of the other three gets broken (I could make do with an S3 if my S4 was damaged). That saves us $396 per year, so it is very cost effective. And the spare phone is immediately available to switch one of the other numbers to.

That last fact is an important consideration. How long can you afford to be without a cell phone if yours is broken? How long will it take to buy one on eBay and have it delivered, versus sending your phone in to Sprint to have it repaired or replaced under their insurance?

So if you were planning on buying insurance, it might actually be cheaper to just buy a spare phone and have it sitting around in case it's needed. That's especially true if you have a family plan with more than one of the same kind of phones. (As a minor bonus, I keep our spare phone charged up. That way I have a fully charged spare battery available if another phone needs it.)

Posted by:

Daniel Wiener
09 Nov 2013

Following up on my earlier comment, it occurred to me that my sister had a family plan in which she was paying insurance for three iPhones for her teenagers. I talked to her a little while ago, pointing out that she could buy a used iPhone on eBay for $150 to $200 if any of those three phones broke, and she agreed that it made sense to cancel all that insurance.

So thank you, Bob, for raising this topic and causing me to ruminate on it. It will have the direct effect of saving my sister $396 per year. Even more, actually. While I was talking to the Sprint representative I asked if there were any other discounts available. They have 10% discounts on primary cell phone bills if you're a AAA member -- which my sister is -- or a credit union member, and even larger discounts available if you work for some large companies. My company qualifies me for a 22% discount.

So again, thank you. This turned out to be a very lucrative article for our family.

Posted by:

Bob D
31 Dec 2014

Extended warranties on electronic gadgets are likely to be a scam. But for mechanical gadgets with moving parts, it's a different story. My Predator gasoline-fueled electric generator failed 22 months into its 24-month extended service plan. Harbor Freight traded a new one for it.

Posted by:

31 Dec 2014

Well, Bob, since you introduced the health care issue ...
We must understand that "insurance" is a poor name for financing health care. Unlike electronic devices, which rarely fail, human bodies are almost certain to fail before perishing. Insuring against accident and illness is a poor risk. We need to pool resources to cover the inevitable. People who insist on "taking responsibility" and who denigrate people who need help are due for a big surprise. All it takes is one diagnosis to enlighten one on the need for pooled assistance. To those who are healthy and immune to accidents: your turn is coming.

EDITOR'S NOTE: For the record, I never mentioned health care in this article.

Posted by:

Paul Robin
31 Dec 2014

ALL major credit card companies give a FREE warranty extension -DOUBLE the mfg warranty up to one year, if you purchase the item with their card.

Posted by:

02 Jan 2015

Sorry Bob, but you did mention health care in the first paragraph. But thanks for the useful information.

EDITOR'S NOTE: Quite right, I thought the original comment was on that current day's article. (10 Things Not To Buy in 2015)

Posted by:

03 Jun 2015

Bob, you are so right. What I say about all warranties. It's just a license to argue; or run head-on into exhausting and frustrating disappointment.

As for those that think they are smarter than Bob. YOU should pick you favorite dog food now that you'll be eating when you are on a skimpy social security check and no saving, when you hit retirement age.

Bob keep up the great work...

Posted by:

30 Nov 2015

If you have a Wells Fargo credit card, and pay the entire wireless phone bill with it every month, they offer a FREE warranty on your device.....$25 deductible, then up to $600 reimbursement per repair, 2 claims are allowed a year.

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