[SCAM WARNING] Gadget Insurance and Extended Warranties

Category: Finance , Gadgets

I've never been a proponent of insurance, protection plans, or extended warranties 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. Why else would they try so hard to sell these plans at the point of purchase? Here's what you need to know about mobile device insurance, extended warranties, 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. Device insurance policies 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. In my experience, the percentage is even higher for big ticket items and appliances. 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 phone 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 has done over the past few years, from $7 for a single device, up to $15 per month. There's also a Multi-Device Protection plan which covers 4 devices. That costs $40 per month. Do you think you'll get $960 worth of value over the course of 24 months?

The extended warranty and device insurance scam

Some extended warranties provide that you must accept a refurbished device if a replacement is granted. Others go further, saying that you may receive a replacement of the "same or comparable model." Guess who decides what "comparable" means?

And speaking of refurbished replacements, here’s a 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. You have to choose whether you want the Verizon Protect Multi-Device, Verizon Protect Single Device, Total Mobile Protection Multi-Device, Total Mobile Protection, Total Equipment Coverage, or Wireless Phone Protection plan. For most phones, you pay between $7 and $17 per month per covered device, or $50 per month to cover three devices. There's a deductible of $199 - $229 per approved claim for devices lost, stolen, or damaged. You get up to 3 replacements or repairs in a 12-month period. That's the large print -- and it gets more complicated from there, as plans, prices and claim limits vary from state to state.

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 couple hundred dollars for two years of coverage on a big-screen HDTV. And after 24 months, they'll hit you up again to extend your coverage.

If you're just a little adventurous, you can fix almost anything with the help of YouTube. I've replaced a few cracked smartphone screens with a $30 repair kit, a hair dryer and a sharp blade. 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. Costco includes a 2 year warranty with most electronics and extends that to 4 years if you use the Costco Visa card. Check with your credit 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 savvy reader told me that his "home computer" endorsement also covered smart phones with a $50 deductible. The cost was only $18/year for $5000 of coverage on all computers, smart phones, tablets, etc.

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. AKKO is a Squaretrade competitor, and they offer a clear comparison of their prices and services. Upsie is another warranty provider that claims you'll save up to 70% compared to in-store, and promises confusion-free coverage with no surprise fees.

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. The fact that insurance companies are very profitable should confirm that. 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...

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Most recent comments on "[SCAM WARNING] Gadget Insurance and Extended Warranties"

Posted by:

13 Jan 2022

As with all insurance, you balance cost with financial risk. So no I don't think it's a scam, although for the most part a poor financial deal.

I have never purchased for my own phone or electronics, but I have for my son. With every phone where he's had protection plan, the plan has replaced phone for reasons that would not have been covered by warranty or after warranty expired. Sometimes multiple times. And the replacement arrived the next day.

I cancel the plan when phone is old enough that he'd prefer to replace with a newer model if breaks or lost.

Posted by:

13 Jan 2022

I stopped buying warranties years ago when they changed from something useful to a waste of money.
Back in the day you would receive the full amount you had paid for the appliance, no messing about and arguing, they just sent a check.
Now they just want to provide an inferior replacement.
No thanks! I'll take my chances.

Posted by:

John C
13 Jan 2022

I have never purchased and extended warranty for myself. I agree they're not worth it for the reasons you stated. In the past, however, I did authorize the purchase of the "Oops, I dropped it" coverage for some Dell laptops. This was extra coverage in addition to the standard corporate 1-year coverage.

This extra coverage paid for itself more than once with the traveling salespeople who managed to destroy laptops. One poor guy had a bottle of wine dumped on his laptop during a turbulent flight from the home office in California back home when the airline hostess' cart took off down the aisle and slammed into him. The extra coverage covered that and saved the company from purchasing a new laptop, The insurance was less than $50 per machine at the time. Another gent ended up getting knocked over while carrying his machine into a meeting and smashed the screen. It's things like this that cost money since for most laptops the screen costs as much as the machine it comes with.

Best Buy is famous for asking if we want an extended warranty on stupid things like $20 CD-ROM drives. I told the cashier that this $20 drive will outlast the machine I put it in at the time and I still have the drive today a decade later. The hosting PC is in fact long gone.

Posted by:

13 Jan 2022

Instead of buying insurance on our smartphones we always buy cases with deep bezels and tempered glass screen protectors. The cases usually cost about $10 on Amazon and the screen protectors run about the same amount for a 3 pack. Paired up, these 2 items have protected our phones from numerous disasters.

Posted by:

13 Jan 2022

Thanks for an informative, timely article. While I would not call these "warranties" scams I agree they are essentially meaningless when one understands the original warranty. What I would call a scam is users believing they need the latest and greatest phone when a new model comes out. Get real! And don't be a sucker for expensive Apple products.

Posted by:

Renaud Olgiati
13 Jan 2022

As a general rule, and of course excepting the case of insurance that is a legal or contractual obligation, one should never insure against the risks one can afford to cover.

Remember the insurance company is there to make profits for its shareholders, so you end up paying in premium more than the real cost, which is the product (probability of damage) x (cost of damage).

Posted by:

Ernest N. Wilcox Jr.
13 Jan 2022

I have never paid for any type of extended or enhanced warranty for any household appliance or electronic device. In my experience, all such devices I have purchased were old enough before failing, that is was better to replace than repair them. Most of the time, these devices are still working well when I replace them, so I donate them for redistribution to the less fortunate, or give them to acquaintances for whom they will be useful.

I build, repair, and upgrade my own desktop PCs, and I repair my laptops. I have a mobile phone (smart phone), but I have never needed to repair it, and I suspect that it will be old enough by the time it fails that it will also be better to replace than repair.

I believe in insurance. I maintain life insurance so my children will not have to pay any of my end of life expenses when my time comes. I have home owner's insurance to protect me from the liability of someone being injured on my property, and to cover most of the repair/reconstruction costs in the event of some disaster/fire. I maintain liability insurance on my vehicle to protect me from the unlikely event that I am involved in an at-fault accident, and because it is the law in my state. As I said above, I believe in insurance, but I do not believe in throwing good money after bad, and in my opinion, expended warranties and device insurance policies fall into the bad category. Why should I pay for insurance I will never use?



Posted by:

Emily Booth
13 Jan 2022

I'm trying to think of the times I've used warranties & insurance on appliances and cellphones.

My very first cellphone was a Cingular Nokia that came with insurance. I used the insurance several days before it expired to replace the screen. Cingular dropped this insurance.

I have used the warranty on a Fitbit to replace it.

When I bought my first car, a Toyota Corolla, I also bought the extended warranty. At the time, I thought, down the road, I might sell the car and the extended warranty would be a good selling tool. I didn't sell it. The extended warranty wasn't needed, not even for repairs. It was just revenue for the dealer.

When I sold my condo, I offered a warranty on my used appliances.

Posted by:

13 Jan 2022

Whole heartedly agree with everything you have said here. My response to a Sears salesman when he tried to sell me a plan on a glass top electric stove with the line "if that glass top breaks, it will cost you over $300" my response was "no, if it breaks because it's cheap garbage, I'll just sue Sears" That ended the discussion. The WORSE SCAMS are gap insurance on a car. This came about when a few years ago everyone was selling cars with no money down so the minute you drove the car off the lot it was worth less than what the normal insurance would pay in a total loss. If you are like many people you are upside down in a loan on your car so if you total it without gap insurance, you will still owe what the insurance doesn't pay. Personally I would never buy a car in that kind of scenario but that's me. My daughter just recently bought her first car from a dealer and they tried to sell her the gap and an extended warranty on the car. When he asked her which plan she wanted, I said none of them. Gap insurance should be illegal and especially because she was buying the car for $3000 under book so there was no need for it all. He quickly shut up. It is a huge cash cow for the dealers as are the warranties. ON the flip side if you buy a car and they role your existing loan into the loan for a newer one, you are going to be upside down in the loan and should have it. But buying it from your car insurance company will be much less expensive than the dealer.

Posted by:

13 Jan 2022

Many credit cards offer 1 year extended warranty for free if the card is used to buy the item. I have used this a few times and it is great!

Posted by:

Ron Atkinson
13 Jan 2022

My iphone is covered, for no extra cost, on my household insurance as are several other small electronics. This in the UK so maybe American Insurance doesn't do this?

Posted by:

13 Jan 2022

I purchased my first cell phone, a Motorola Bag phone), somewhere around 1988. Since then I have had a cell-phone/smartphone continuously without paying for any type if insuranceon them.

In all of that time I have never had any issues other than a few times under the original warranty.

The same thing holds true for any electronic device I have bought with the exception of the first laptop I bought in 2004. I bought coverage through SquareTrade which included accidential damage, spills, etc. I do not remember how long coverage was for but, once again, it was not needed.

Posted by:

Gil Houston
14 Jan 2022

We recently replaced a roll-aound dishwasher because the part I felt it needed (water pump) was no longer available. I considered fitting in another one and decided that after some 45 to 50 years it was time to replace it (OK, so I'm of Scottish decent ) and was shocked when we got the new one. The ONLY change I could discern from the outside was the controls were all push-buttons whereas the old one was a rotary timer/selector switch. If I'd known, I might have looked into buying a replacement pump for it and shoehorning it into the old machine. BTW, the new one works quite well and we're happy with it.

Posted by:

Oliver Fleming
14 Jan 2022

When I worked for a wealthy boat owner some 50 odd years ago. I took his boat to Mazatlan he flew down and joined us there for his holiday. He went ashore to make a phone call (no fancy phones then) He came back and said he was flying back to LA in the morning. Asked WHY? He said to buy an insurance company. (I was an avid reader of financial papers and insurance companies were not doing well.)
He replied "Insurance companies are a licence to STEAL" This was a man that started out as a mechanic on the tools. He pulled himself up and a person to be admired. I have NEVER forgotten his statement!

Posted by:

John L
14 Jan 2022

I am inclined to agree about insurances for small items like phones. However I bought a 65 inch LG TV a few years ago with 4 year extended warranty. So 5 years including the standard warranty. In the 5th year it started playing up and was found to need a new mother board, paid for by the insurance.

Posted by:

Daniel Wiener
14 Jan 2022

I agree with you in principle, and I always self-insure for myself (e.g., my cell phone and computers). But there is an intangible "peace of mind" factor. I have several nieces and nephews and other family members on our wireless family plan, and in the past they would automatically buy the provider's expensive insurance when they got new phones. They are terrified of what it would cost them if a new iPhone 13 (for example) got dropped and broken.

So I've talked them into foregoing the provider's insurance and instead buying Upsie policies. Upsie is much less expensive and has a good reputation. It's worth it for their peace of mind, even if it's arguably a losing financial transaction.

Similarly, we have Sears extended service policies on all of our major appliances (refrigerators, stove, microwave, dishwasher, washing machine, dryer). My preference would be to self-insure, and just pay a one-time charge for a repair technician if something goes wrong. But my wife wants the security of getting everything annually serviced, and of being able to call someone anytime there's a funny vibration or something else strange is happening. Her peace of mind contributes directly to my peace of mind, so it's worth the expense.

Posted by:

Karen Poff
14 Jan 2022

In my financial management classes, I give clients a simple solution. If you are tempted to buy extended warranties, instead put that same amount of money into a separate savings account (monthly if it is a warranty you would pay for monthly). Do this every time you are offered an extended warranty. Everything is not going to break. But if something does, there will be money in savings to pay for it. If nothing breaks, the money is in YOUR pocket and not the insurance company's!

Posted by:

16 Jan 2022

About a year ago I bought a stapler at Office Max ($10 bucks) the check out person asked if I wanted to purchase the extended warranty.... WTF?
Needless to say, I said no.

Posted by:

17 Jan 2022

Agree, mostly B.S.
Last time I bought (fell for) an extended , early 80's Toyota. Tranny/drive train prob late 80's,
Oh nooo, NOT COVERED (he says,pointing to the micro small print). Fool me once....

Posted by:

Dana Lynch
18 Jan 2022

I only buy a extended warranty if the item is expensive to replace. I just purchased a $800 Smart TV and took a while to save for it as I live a Social Security payments. So to replace it might be impossible. I previously had an expensive TV that died 2 weeks after manufacture warranty and the extended replaced it. I also consider that the cost of replacement for the TV will definitely go up years from now.

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