SCAM ALERT: Mobile Device Insurance and Extended Warranties
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!
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...
This article was posted by Bob Rankin on 1 Nov 2013
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Article information: AskBobRankin -- SCAM ALERT: Mobile Device Insurance and Extended Warranties (Posted: 1 Nov 2013)
Copyright © 2005 - Bob Rankin - All Rights Reserved