Insurance for the iPhone - Not a Good Deal for Everyone

July 28, 2010 - PRLog -- Early in 2010, AT&T announced that they would offer an insurance plan to cover all new iPhones.  The plan costs $11.99 dollars per month, and must be signed within 30 days of purchasing a new iPhone.  The announcement was great news to iPhone owners who have been dismayed by the lack of an insurance option for their devices.  To me, the announcement lost its shimmer once I thought about what a bad deal this is.

First, let’s talk about what insurance really is.  It is peace of mind, simply put. You agree to pay money to a company and receive no product or service in return.  All you receive is a promise that the insurer will pay in the event of a loss.  Often times, the losses can be enormous (e.g., a flood, sudden death or home fire).  Yet, because these events are statistically unlikely to happen and the insurance companies know it, the cost of such peace of mind comes at a low enough cost to be a good value.  
However, what if some sort of loss occurs more frequently (a cracked iPhone screen or an auto accident by a teenager, for instance)?  What does an insurance company do to account for that?  Well, they price the premiums higher because there is a higher likelihood that a loss will occur. If the insurance company doesn’t price the premiums high enough, the insurance company will go out of business.

So, how much does peace of mind cost for a $600 or $700 iPhone that break more often and cost more than many other smart-phones? Well, it’s a price that I don’t believe is a good bargain. First of all, at $11.99, the premiums alone are $287.76 for the duration of a two-year contract.  In ADDITION, if you have a iPhone 4 with any size memory or or an iPhone 3GS with memory anything over 16GB,  you must pay a deductible of $199 to replace your damaged device before you can get a replacement.  That added together is $486.76.  That’s a huge amount of money to insure a phone that costs $700 for the most expensive 4th Generation iPhone on the market and $600 for the next model down.   3GS iPhones cost even less to replace.    

Why not, instead of paying such a high premium for insurance, take advantage of an  iPhone repair company?  A simple Google search will show that many reputable companies participate in iPhone repair.  You can fix a cracked 4th Generation iPhone screen for $199 bucks.  Many of these companies will fully refurbish a 3GS iPhone for less than $199.  And you saved $11.99 a month.  

Keep in mind, you may be eligible for a two-year upgrade at the time you actually break your phone, which would allow you to replace your iPhone merely by agreeing to another 2-year contract and paying $199. You would even get a newer model.  
 
The bottom line is that before you let yourself get talked into insurance by a sales rep, make sure this peace of mind is worth the cost according to your own lifestyle. Measure the cost against the risk.  The AT&T rep gets commissions for selling insurance and will always recommend it. AT&T does not repair the devices and therefore doesn’t make any money if customers know they can get their phone repaired elsewhere. The price of the monthly premium adds up, and if you are a person who typically doesn’t break electronics or lose things, then your money is wasted.

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