My Rule of Thumb on Smartphone Insurance: Do You Need It and For How Long?

Hi, everyone!  This is Lara Hammock from the Marble Jar channel and in today’s video, I’ll share my rule of thumb for deciding whether I needed smartphone insurance and for how long.  

I’ve been going though this process of examining each of our monthly payments and to determine whether I’m paying too much and whether they are still worth the price.  One of the areas I looked at was our smartphone insurance.  

Smartphones are expensive, easy to break, and easy to lose.  The fact that we have them with us at every moment makes the risk of loss or damage even higher.  Someone recognized all of this and is making big money off of smartphone insurance.  We are good candidates for insurance.  Both of my kids have ADHD which makes loss or damage almost unavoidable and, although their phones are not top of the line, they are definitely not cheap.  Not all insurance is created equal — some only cover manufacturer defects, others cover your phone even if it is lost or stolen.  So, how do you figure out whether to get smartphone insurance and how long you will need it?

First of all, there are three personal characteristics that you will need to evaluate for yourself.  The first is

• How forgetful or clumsy are you?  This should be based on your past experience with expensive devices, not necessarily just what you think about yourself.  In other words, some people who are extremely forgetful about things like gloves and jackets never lose or break their phones.  Others wouldn’t necessarily consider themselves clumsy, but have rotten experience with phones.  Base it on your actual experience.  Second
• Do you have any money set aside for emergencies?  In other words, if something were to happen to your phone, could you cough up the money to replace it?  If you live paycheck to paycheck and don’t have much extra on hand, it may be better to have the insurance company accumulate money for you, rather than trusting yourself to do it — since you don’t have a great track record with this. And finally, 
• How anxious are you?  Our phones are with us all the time.  Is not having insurance going to make you crazy?  Are you going to have an anxiety attack every time you drop it, temporarily misplace it, or have anything weird happen with it?  If so, it may just be worth the peace of mind to have insurance for longer than others.

From my super quick and not particularly thorough research, it appears that phones depreciate almost entirely over about three years. What that means is that by the end of three years, it’ll be worth almost nothing.  So, it loses about a third of its value each year. This is important to know since in order to make this insurance decision, you need to know what your options are if you lose, break or get your phone stolen.  

Some folks think the only option is to get a brand new phone.  This is not true!  First of all, replacing your used phone with a new one is not a fair exchange. The fair exchange is if you replace your already used phone with another already used phone.  And this is why depreciation is important.  A $600 phone that is a year old is no longer going to be worth $600.  It’ll be worth more like $400.  You should be able to find a used phone to buy as a replacement.  You can also, (horror of horrors) downgrade to a cheaper phone.  Yes, this will be annoying, but you may not have the means to replace your phone when you are still in the middle of paying it off.  So, you can buy a cheaper version OR resort back to an older model — maybe even the one you upgraded from.  This is actually a really good reason to keep old phones — they are their own insurance policy.  Because of the phone depreciation, it makes sense to plan to use a phone for three years.  If you are changing phones more frequently than this, you are not getting the full value of it. 

You need to take into account the price of your phone when it was new (maybe it is way more expensive than my $600 example, or way cheaper).  What the insurance plan’s deductible is — in other words, what you will have to pay upfront to replace it — our plan’s deductible is $150 — and also your monthly fee and what it includes.  Far more people damage their phones than lose them or have them stolen, so almost all will cover that, but all of those are important cost factors. 

Here’s my general rule of thumb: I get insurance for the amount of time it takes to pay for 1/3 of the cost of the phone.  So in other words, if my phone is $720 brand new.  One third of that would be $240.  I’m paying $15 per month so, $240 divided by $15 should give me the number months that I should keep my insurance — which works out to 16 months. If you happen to be super forgetful, clumsy, unlucky, anxious, or have no savings, I would keep for insurance up to 2/3 of the cost of the phone, so up to 32 months. 

Here are a couple of case studies.  The first case is me.  I have an iPhone 8 Plus that was $720 when it was new.  My insurance, which covers everything from drops, spills, to stolen phones is $15 per month with a $150 deductible.  I do not lose or damage phones regularly (although I do crack screens).  I save money, so I have more than enough set aside to buy a new phone AND I’m not particularly anxious.   Using my rule of thumb, I will pay insurance for 16 months.  This mostly would take the sting out of having to replace the phone if something were to happen to it right away.  I figure $270 is worth it for that peace of mind.  After that, a replacement will only cost me $350, which is only $200 more than the deductible.  I can handle this risk since I don’t damage, lose, or get my phone stolen frequently.

Case Study #2 - my daughter.  Okay - she is considering using Xmas, birthday money, and savings to buy a $700 iPhone.  Again, our insurance covers virtually everything, is $15 per month, and has a $150 deductible.   She is a person who DOES happen to lose or damage phones regularly -- just in the past 2 and a half years, she has had 2 full phone replacements and 2 cracked screens.  She is also a teen, so it take a while to accumulate that kind of money.  In addition, she is very anxious about taking her phone places since she is worried something will happen to it.  My solution for her is that we pay for insurance for 2 full years -- the $360 is worth the peace of mind.  After that, a replacement will be almost the same as the deductible, but with her luck, we could easily have replaced several phones by then.

So again, my rule of thumb is to spend up to 1/3 of the cost of the phone on insurance, divided into monthly payments.  If you are particularly forgetful, clumsy, unlucky, anxious or spendy, then it probably makes sense to spend up to 2/3 of the cost of the phone since you are a bigger insurance risk than the rest of us or could really use the peace of mind.  If you aren't paying for insurance, be sure to stash some money away just in case and keep your old phone -- you may need it in a pinch.

In the meantime, do what you can to protect your phone.  Make sure you buy a good case that wraps around the screen and a glass screen protector.  Both of these will absorb a lot of the impact if you do drop your phone, so they are a form of insurance protection as well.  Let me know what you think!  Comments are always appreciated and thanks for watching.