Is buying insurance on this cell phone the cheaper alternative?

omnia I love the bit from The Simpsons where someone asks why Ned’s home wasn’t insured, and his wife explains that he considers insurance a form of gambling. He’s right, actually. You take out insurance when you don’t want to play the odds that nothing bad will happen to whatever you’re insuring. Sometimes insurance is great, but as we all know… sometimes you end up paying a whole lot for nothing. Either nothing ever goes wrong and all you get for your money is some peace of mind, or it goes wrong but the insurance company wiggles out of paying the claim.

One of the most debatable forms of insurance are those replacement policies on cell phones and other gadgets. Without the insurance, you could end up having to replace the device at full cost. With the insurance, hopefully that won’t happen, but I think we’ve all known (or been) people who had a legitimate claim turned down and still ended up having to replace a device at full cost and pay all their insurance premiums every month.

Tell me what you think about this specific example. A friend of mine just bought the Samsung Omnia phone with a 2-year Verizon contract. The replacement insurance would be $4.99/month or $5.99 – the difference is, the $5.99 plan replaces the device in case of a defect (like an extended warranty) while the $4.99 plan just replaces it in the case of damage or loss. I’m not sure if you get charged taxes on the insurance (cell phone taxes being insane), so let’s assume those are the total costs. That’s about $120 or $144 over the two year contract. Also, there’s a $50 deductible for each claim. So if you have to have your phone replaced once during those two years (I hope that’s more than enough for most people), you’re effectively paying either $170 or $194 for the new phone. And that will most likely be a refurbished phone.

The Samsung Omnia retails at $599, so $194 sounds like a bargain. But wait – you can buy a “like new” unlocked Omnia on ebay right now for $330, with free shipping. That’s a buy-it-now price, so no need to win a bid. The difference between $194 and $330 is just $136. Now, consider how quickly these devices fall in price as they get replaced with newer, snazzier models. If it’s six months, or twelve, or eighteen before you need to replace your phone, what would the cost be then?

If you have lost/damaged a lot of phones over the years and expect this to continue, then I think getting the insurance is a no-brainer – you need it. But many people rarely if ever need their phones replaced. Is this insurance a good bargain for someone like that? Basically, you’re paying $170-194 against the possibility of having to pay $330 at the most. And you may never need to pay it at all. Which is the more sound investment – the guaranteed loss against the possibility of a bigger loss, or playing the odds against the bigger loss happening at all?

Related posts: