Saturday, March 9, 2013

Bottom line: Don't forget that you can buy third party insurance for your expensive gadgets.

Hi everyone,

I made a post about a year ago about third party insurance for your gadgets.  The original post is:

With the recent announcement of the iPhone 5, I'm sure that at least a few of you plan on upgrading.  This is just a reminder that you should at least consider third party insurance and make a conscious decision about whether or not you think it's worth the cost.

In the last year, Apple has also began providing a new warrantee plan called Applecare+ (in addition to their traditional Applecare).  As I understand it, this extends the duration of your manufacturer warrantee and will also cover up to 2 accident-type incidences, which I believe covers drops / cracks / water damage.  There is $50 premium per incident.

Luckily, I haven't needed to use my Worth Ave. Group insurance, but I plan on getting another policy with them, because they cover unlimited incidences (also at $50 each), and they additionally cover theft and jailbroken devices (which Applecare+ does not, AFAIK).  Additionally, I believe you can buy a policy from them at any time, so you could even get insurance for a device that was several years old if you wanted.  You can get a quote for your device at their site, it will likely be about $100 for a 1 year policy for an iPhone 5, depending on what model.

Squaretrade is another popular option that you should consider if you're in the market.  When I'd previously compared, Squaretrade and WAG were overall pretty comparable, but did have minor differences, so take a good look.

Finally, make sure you do a little math before you purchase 3rd party insurance.  One thing to consider is the replacement cost for your device.  Many people forget that their original purchase price is often heavily subsidized if they start or renew a contract with their wireless provider at the time of purchase.  An iPhone may only cost you $299 with a new contract, but if you break the phone and choose to replace it, it can easily cost you double that amount.

On the other hand, if you purchase 2 years of insurance at $100 per year and never break your device, you've just paid nearly double what you needed to pay ($500 phone + insurance versus $300 phone only).

Keep in mind that you don't always have to replace the whole device.  My roommate shattered the glass on his iPhone 4, and he was quoted $120 for a repair by Apple.  Including the $50-per-incident cost, that would have cost him $220 in insurance over the life of his phone (~$170 for 2-year iP4 insurance + $50 premium), about a hundred bucks more than it would have been to go without.  Even though they didn't have to, Apple generously did the repair for free, so he ended up paying $170 in insurance that he never needed, on top of the subsidized $299 for his phone.

My thinking is this: I can be clumsy, and I bring my phone on MTB rides a lot, so I think my risk of breaking a phone is moderate.  Using my iPhone 4 as the example (since the costs are known), it was $170 for a 2-year WAG policy for an average of $85 per year, which covers the $599 cost of an iPhone 4 32GB, less the $50 premium.  If this is starting to sound like a problem from your kid's math homework, you're right.  If x is time in years, y is "incidents," negative values representing costs to me, then the "breaking even" line would be: -$85 * x + $600 * y - $50 * y = -85x + 550y, or y = (85x)/550.  At any point on that line, I am breaking even.  Points above the line represent me benefiting from the insurance, points below represent the insurance being a net cost to me.

To make this a little more concrete, we can easily find how many years of insurance would be "worth it" given 1 catastrophic event by solving for x at y=1 (or just figure $550 / $85/yr) = about 6.5 years.  So if I break my device once every 6.5 years, the insurance has paid for itself.  If I don't, then the question is: is $85 per year a reasonable amount for me to pay for peace of mind?  Does it allow me to comfortably use my device in more situations than I otherwise would (i.e. adventure sports)?

Now, recognize that this also doesn't account for declining value of the phone over time (i.e. at 6.5 years, a replacement might only cost me $50).  This may or may not be relevant with WAG, who insures the individual and not the device, and therefore you can pass your insurance value to a new device if you upgrade over time.

Well, by this time I'm sure you get the point.  Please let us know in the comments section if you've had experiences with 3rd party device insurance and what those experiences are.

See you soon,

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