Should I remove insurance or a protection plan?

Sometimes, we’ll suggest removing insurance or “protection plans” from your bills. Most of the times, this is a recommendation on a wireless or cell phone bill, although various other providers can offer similar plans, like “inside wire protection.” We highlight those because we’ve found that often people have them, but don’t use them or get value out of them. Whether it makes sense for you is a personal decision, but here’s what we know about them:

What is wireless insurance or protection?

Providers will offer plans where you pay a monthly insurance rate in case you damage or lose your phone. You pay a little bit each month and then if you need a new phone, you’re not stuck with a big expense all at once.

Why do we sometimes recommend removing insurance?

On average, cell phone carriers and insurance providers make money off of insurance plans, because they pay out less than they take out. It’s like going to a casino—you might win big, but on average the house always wins. Generally speaking, insurance makes more sense for something like medical bills, a home, or car, where the covered incident can run into the tens or hundreds of thousands of dollars. With phones, there is less than a thousand dollars at stake, so it is more affordable for the average consumer to self-insure. Meaning every month, you set aside the cost of the insurance And, on average, you save money by self-insuring. That’s why we recommend it, if you can.

When should I remove insurance and self-insure instead?

This will depend on your situation. The factors are: how expensive is the plan, what does it cover, how often have you had to replace phones in the past, and what your financial situation is.

Insurance plans can run from as little as $7/mo to as much as $17/mo. And all insurance plans come with a deductible, meaning that you’ll still be out of pocket a certain amount when it comes time to make the replacement. Most plans come with a deductible ranging between $200-300.

The most common cause of broken phones and phone repair claims is broken screens, which tend to cost less than the total deductible. So, instead of comparing against times you’ve damaged your phone screen or in another minor way, you want to consider times you have completely destroyed, lost your phone, or had it stolen.

So, the basic math is: multiply the number of months between expected insurance claims by the monthly premium. Then, subtract the deductible from the cost of a replacement refurbished phone.

An example:

You pay $15/mo for insurance and it carries a $200 deductible. Let’s say a replacement phone costs $600. You stand to save $400 total ($600-$200) by having insurance replace the phone. However, each month that goes by that you don’t make that claim that amount goes down. After paying your first month, you will only save $375. After month 27, you start to lose money. That’s a pretty long time—long enough you might lose or break your phone during that period.

However, according to research, about half of Americans have never lost or broken a phone. For those that have, the average number of phone lost or broken in their lifetime is 2, with only 13% having lost or broken more than 3. That means that statistically, you are unlikely to use the insurance before those 27 months are up. The house always wins.

Okay, so should I remove the insurance?

Do you tend to break or lose your phone every two years? If so, keep insurance.

If you lost or broke your phone within the next 24 months, would you be unable to afford a replacement? If so, keep insurance.

Otherwise, ditch the insurance and you’ll likely save money.

 

 

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