How Smart is it to Insure Your Smartphone?

iStock_000019906215XSmallAccording to a recent survey by Pew Research, 45% of American adults own a smartphone. Along with the greater capabilities of the new devices also come the hefty prices of repair or replacement in the event of damage or loss. If you’ve ever wondered whether or not your phone is insured or if you should purchase additional insurance coverage, you’re not alone. It can be very confusing to the average consumer to know exactly how to handle the potential loss of a smartphone.

When you buy a new smartphone, it’s very likely that you are receiving a lower price for the phone because you have agreed to sign a contract for cellular service. Because your contract usually runs one to two years, the cellular provider can count on your monthly service for revenue and profit, thereby passing some of that to you in the form of a discount on the phone. This is pretty common in many industries, pioneered early on by companies selling razors at discounted prices because they earned more on the replacement blades. Unfortunately, in the smartphone world, this can prove to be a big problem if your phone is ever lost or stolen.

A new phone with a contract can often be only $100, but a phone without a contract can be as much as $600. Many consumers don’t understand this difference when they sign on for their new phones and only understand the pain when it comes time to deal with a lost phone. Of course, the cellular providers often offer insurance for your device for a few dollars each month that you pay along with your service bill. This insurance might not be a bad idea if you don’t have coverage on your home insurance policy.

Speaking of the home insurance policy, it’s pretty clear that smartphones are considered personal property and are covered. However, the problem with your home insurance policy is the pesky deductible. Since your policy is generally designed to cover you for some major losses, such as the entire house, you probably have a hefty out-of-pocket in the event of a claim. Smartphones tend to be lost or stolen by themselves and the claim may not even exceed your deductible obligation. Therefore, if you want to insure your phone, you might want to consider other coverage.

All of this does bring up a good point to consider with any insurance, which is whether or not you need it. Certainly it’s important to have insurance for catastrophic losses (the aforementioned loss of an entire home), but it’s tougher to decide on how to insure smaller losses. One of the rules of thumb that many experts use in figuring out how much to insure and what kind of deductibles to pay is the idea of how much risk tolerance you have. Some people are very averse to any risk or uncertainty in their lives and will insure everything, even if that insurance isn’t always the best financial choice. However, the decision to insure and pay regular premiums brings them certainty and makes them comfortable.

On the other hand, others will not insure losses that they can reasonable tolerate if they don’t happen with regularity. For example, your smartphone’s loss at up to $600 might be a tough pill to swallow but do you think you can absorb the cost? If it proves to be a significant financial difficulty, it might not make sense for you to insure it if the insurance ends up costing $50 – $100 per year. Of course, if you plan on losing your phone often (just because you’re one of those people!), the insurance might still be a good decision.

Whether or not to insure your smartphone is a good example of some of the difficult personal decisions you need to make when deciding on insurance. The process of purchasing insurance cannot always be simplified to formula. Much of it is a choice of personal comfort levels and only you can know what is right for you.


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