By Catey Hill
The cellphone falls into the toilet. Your daughter gets the flu the day before you were leaving on safari. Your dog tears his ACL wrestling with another pooch. At any time, the events and accidents of daily life can threaten to put a serious crimp in your style – and a dent in your wallet.
Good news: There’s insurance for that. The market has exploded recently for what are called “non-essential” insurance policies – electronics, plane tickets and vet care are common. Veterinary Pet Insurance reports a 35% increase in pet insurance policies from 2005 through 2010, and a 2% increase over the last year alone. Statistics for the other policies aren’t tracked, although now that nine out of 10 Americans owns a cellphone, insurance for those gadgets is more common, as well. “It is hard to escape a transaction these days without someone trying to squeeze a few more dollars from you for some form of ‘protection,’” says Allan Keiter, the president of MyRatePlan, a comparison site for household products and services. And more could be on the way.
What’s behind the proliferation of policies? For the companies that write them, they can be extremely profitable, says John Rost, founder and chief executive of Fiesta Insurance Franchise. Insurance is designed so we can all pay a little bit so that a small fraction of us can be covered in the event of a disaster. But many of these non-catastrophic policies don’t quite work that way. Between premiums and the deductible, customers with cellphone insurance could end up paying the insurance company more than it would cost to buy a new phone outright. And acccording to some estimates, the profit margin on extended warranties – basically, a form of insurance to protect your gadgets beyond what the manufacturer’s warranty covers – is a whopping 50%.
But there’s an alternative to shelling out monthly premiums: saving enough money to provide your own “insurance,” so that in the unlikely event of an emergency, you can cover your own losses. This doesn’t make sense when it comes to events that could bankrupt you or your family – self-insuring your home, health or life is not wise, experts say. But in some of the most popular non-essential insurance categories, it can make sense.
Cellphone insurance
With average premiums around $5.64 per month, according to Citizens Utility Board, cell phone insurance is cheap. But even with the coverage, losing your phone can still be expensive. The policies usually require a deductible of up to $100, in addition to the premiums, and there are often exclusions for common mishaps like cracked screens. Plus, some cell phone issues are covered by the manufacturer’s warranty anyway, the average cell phone isn’t all that expensive, and the insurance company might replace your phone with a refurbished model rather than a new one. “It’s not worth it,” says Schwark Satyavolu, co-founder and CEO of BillShrink.com.
Cost to “self-insure”: $100 – $600. To cover yourself, you simply want to save enough to replace or repair your phone. The average phone repair usually ranges from about $30 to $100, but new phones without a contract are more expensive. Standard phones cost $189 on average, while BlackBerries, iPhones and other smartphones can run up to $599, according to an October 2010 BillShrink.com analysis.
Best (and worst) candidates: If you own an inexpensive phone or you’re unlikely to damage or misplace your fancy gadget, self-insure. Who should get coverage? The clumsy, teenagers and anyone else likely to lose or break an expensive phone.
- smartmoney.com -