Insurance Basics Part 3: Cellphone Insurance

Insurance Basics Part 3: Cell Phone Insurance

The following is not financial or tax advice. Please consult a CPA or investment professional before making tax or investment decisions.

Cell phones can be expensive. The latest model iPhone can cost upwards of $1,099. Cell phone insurance is meant to help protect against a damaged, stolen, or in some cases lost phone. This article provides a comprehensive overview of cell phone insurance, the differences between carrier/third-party/credit card coverage, and how to file a claim.

How does cell phone insurance work?

Cell phone insurance covers the cost of repairing a damaged phone or replacing a stolen or under more limited circumstances, a lost phone. Plans usually have a deductible that you have to pay before you will receive reimbursement for a repair or replacement. If you have your phone stolen or it is broken beyond repair, you will receive a replacement, often refurbished phone or the market value of your phone including depreciation. For example, if your phone was $1,000 new, but is now worth $500, you will receive $500. Also you will receive the lesser of your claim limit or the value of the phone. For example, if your claim limit is $800, but the market value of your phone is $1,000 you will only receive $800.  

When does it make sense to get cell phone insurance?

The math on cell phone insurance is typically highly in the insurer’s favor and for most people not worth paying for separately through a carrier or third-party. Cellphone insurance cost between $8-25 a month or $96-300 a year for a device that at most is worth $1,000. Then there is typically a deductible that for most theft/loss is $99-149. Therefore, you are paying between 10-33% of the value of the after deductible cost of the device every year. Also under some plans rather than a cash payout you are given a refurbished phone rather than a new one if replacement is not possible. Unlike travel insurance for which there are some obvious cases where insurance from credit cards is insufficient, for the vast majority of the population, a credit card’s cell phone insurance will protect you against most risks (with losing your phone being a major exception). 

• Cell phone insurance is almost never worth getting especially if you have a credit card that can provide you with some form of coverage.
• Like all insurance, you know yourself better than they do. If you are a klutz that breaks, loses, hovers a lot over toilets, or has your phone stolen often, then it may make sense for you to get cell phone insurance if you don’t have a credit card with any form of coverage.

When you don’t need cell phone insurance

• You have a credit card that provides you with cell phone insurance.
• Your phone is cheap or old and wouldn’t cost much to replace.
• The cost of replacing your cell phone is immaterial to your financial well being.

Important terms

• Deductible – the amount you have to pay before your coverage kicks in
• Primary insurance – coverage that directly covers your loss/repair
• Secondary insurance – coverage that kicks in after other coverage, usually homeowner’s or renter’s insurance

What is the cost?

Coverage costs vary, but the typical per device or per line cost is between $8-25 a month or $96-300 a year.

Replacement time

Virtually all carrier insurance provides a replacement device within one business day on Monday-Thursday or the following Monday/Tuesday if it is a weekend day. Reimbursement times for third-party and credit card coverage will vary.

Carrier Insurance

Carriers provide the most expensive cellphone insurance, but it is usually the most comprehensive and has some of the lowest deductibles. 

 Key things to keep in mind with carrier provided cellphone insurance:

• Repairs have to be done at preferred vendors to qualify for $0 deductibles.
• Unlike credit card and some third-party insurance, lost phones are usually covered by carrier insurance.
• Carriers are more likely to provide you with a refurbished phone than a cash payout.
• They all cover damage, loss, mechanical breakdown, and theft.

AT&T T-Mobile  Verizon

Third-party insurance

Third-party insurance is usually cheaper than carrier provided cellphone insurance, but has more exclusions and sometimes higher deductibles.

Key things to keep in mind with third-party cellphone insurance:

• To qualify for lost phone insurance coverage you may need to install an app on your phone or purchase a separate policy.
• As is the case with carrier coverage, you usually need to use specific repair providers that are certified by the insurer.

Credit card cellphone insurance

Credit card cellphone insurance is extremely similar to carrier or third-party insurance. If you damage or have you phone stolen you can file a claim and receive reimbursement.

Key things to keep in mind with credit card cellphone insurance:

• You must pay your cell phone carrier bill in full with the credit card providing the insurance. You do not need to buy the phone itself with the insuring credit card.
• Unlike with carrier or third-party insurance LOST PHONES ARE NOT COVERED
• Most coverage does not include cosmetic damage to the phone including screen cracks that don’t impact the phone’s functionality .
• Cards all have a maximum dollars per claim and per year.
• Unlike carrier or third-party insurance which usually allow unlimited claims, most credit cards limit claims to 2 per year.  
• Rather than replacing a phone, the coverage usually pays out in cash.
• There is usually no limit on the number of devices. The value of your coverage increases with the number of lines as you are covering the risk of damage to more phones. People that are outside your household, but that have active phone lines on your carrier account are typically covered. Unless you have a truly catastrophic year and damage or lose more than the usual 2 claim limit, you are getting basically free insurance on additional lines without having to pay for it.

Frequent Miler has the most comprehensive list of cards with cell phone coverage, their deductibles, limits, and notes on coverage.

Primary vs. Secondary coverage

Carrier (AT&T, T-Mobile, & Verizon) and third-party plans (Apple, Bestbuy, insurance companies) all provide primary cell phone insurance coverage meaning if you need to repair or replace your phone you directly contact them to file a claim. They then process your claim and approve or deny it.

Virtually all credit card coverage is in theory secondary coverage meaning you have to file a claim with your homeowner’s or renter’s insurance. In reality, YOU SHOULD NOT EVER file a claim with either homeowner’s or renter’s insurance. The deductible on these policies is likely significant and by opening a claim you will lose any discounts you have from not having filed a recent claim.

Most credit card companies will usually want to know the deductible on your homeowner’s insurance and deduct that amount from your reimbursement. For example, if your homeowner’s insurance deductible is $1,000 and your phone cost $1,200 while your credit card deductible is $100, they would issue payment for $900. $1,200 less the $200 your homeowner’s would pay you if you filed or $1,000 less the $100 deductible or $900. The formula is cost of phone less value over homeowner’s/renter’s deductible less the phone deductible with a maximum equal to the credit card insurance limit.

Also note that most coverage will have you rely on a manufacturer’s warranty if the failure is due to a manufacturing defect such as a faulty battery. Apple and Samsung phones both typically have one-year warranties. Note that both warranties are not applicable to accidental damage and do not cover theft or lost phones.

How to file a claim

Before you file make sure that you have the following information:

• If filing a credit card claim, make sure you download a copy of your cellphone bill.
• In the event your phone was stolen, you must obtain a police report. This is especially important if you are trying to file a credit card cellphone insurance claim as they usually do not cover lost phones.
• Some claims will require that you go to a certified repair shop that will assess the damage and provide you with a report confirming the damage before you can file a claim.

Process:

1. Gather the documents above.
2. File a claim using the websites below, Google your carriers’ claim website, or call their phone number. AT&T T-Mobile Verizon American Express Chase Wells Fargo ( 1-866-804-4770)
3. Pay the deductible.
4. Return the broken device. Usually you have 10- 45 days to make the return, after which insurers may charge a pretty heft no return fee that can be a few hundred dollars.
5. Track your claim via the insurer’s portal.
6. If you are receiving reimbursement, you should receive a check or a direct deposit if you set one up.