Phone Insurance- Good Value or Not?
Key Points
- Salesmen can make insurance look cheap by quoting a monthly price- however, this can add up to a significant amount over the period of your contract.
- Significant deductibles on some policies can make them much less competitive than they look at first glance.
- High repair costs for new models (in particular, screen replacement) often fall significantly within months. If you’re continuing to pay the original rate for your insurance, this makes it a much poorer deal as time goes on.
- In one case, we worked out that it would take eleven screen replacements before the insurance worked out cheaper than just paying for the repairs… except that you were limited to six claims!
- Replacement devices- where offered- are typically refurbished, and while often new-looking on the outside can be badly-repaired and unreliable customer returns on the inside.
- Look at the total cost you’re likely to end up paying over time if (say) you make zero, one, two or more claims. Allow for deductibles, which can make a huge difference, along with any other restrictions.
Introduction
Lots of people enjoy grabbing the latest smartphone when they hit the streets- and there are always plenty of networks and other businesses fighting for your custom. They’ll get you in the door with a tempting-sounding price, then try to make their money back on the extras.
Just like how the smartphone you’re paying £30 a month for can work out at over £600, so the (say) £8.50 a month to cover your valuable new phone doesn’t sound too bad- especially when the salesman’s on commission and at his most persuasive!
But when you add up what you’re actually paying, and look into the small print, is it really such good value for money?
We Crunch the Numbers
At the time of writing (early October 2017), the phone network and retailer Three offer “Three Rescue” (archived here). This is an insurance plan for phone damage, and the cost varies depending upon which model you have. However, for both the Apple iPhone 7 and the Samsung Galaxy S7 Edge the price is £8.50 per month. This makes a total of £204 over a 24-month contract period, but there’s a deductible of £80 for every claim.
Screen replacement is- by a long way- the most common mobile phone repair that our customers request. Currently, we charge £279 for an S7 Edge display, and £99 for an iPhone 7 one. If you made one claim on your insurance, that would be equivalent to £204 + £80 excess = £284.
In other words, even the relatively expensive S7 Edge screen replacement still costs more on insurance if you only claim once! Even this is actually one of the more favourable cases for insurance since- unlike most phones- the cost and scarcity of its AMOLED screens means that the repair cost has remained high.
On the other hand, the iPhone 7 has followed the more typical path where the cost of repair components- and hence repairs- has fallen significantly since its launch. Our pay-as-you-go screen replacement price of £99 (down from £199 around the time of its launch) is now barely more than the £80 excess on the insurance policy you’re already paying £204 a year for!
If you think that sounds like poor value, you’d be right. We worked out that you’d have to have to the iPhone 7 screen replaced eleven or more times just to break even on the cost of the insurance. Except you can’t, because you’re limited to three claims a year (i.e. a maximum of six over 24 months).
Of couse, if you don’t claim at all, that’s £204 you’ve paid regardless.
Repair Prices Fall, but Insurance Can Remain Expensive
As we mentioned above, the cost of screen repairs on most models- with a few exceptions- falls significantly in the months following launch, as parts become more widely available. Insurance that you judged against the cost of repairs when your phone had just hit the streets can end up looking massively overpriced within months.
Doesn’t the Warranty Cover That Anyway?
Broken screen replacement is by far the largest segment of the repair market, but you can run into other problems too. However, it’s worth considering whether those problems would be covered by the manufacturer’s own warranty.
Samsung phones are covered for 24 months, and Apple’s for a year. If there isn’t any physical damage, you may get it fixed regardless. In particular, if there is a known issue or inherent fault with a particular model, the manufacturer may automatically extend the warranty on that part.
Replacement Handsets- Watch What You’re Actually Getting
You may be tempted by the fact that many policies offer a replacement handset if yours is damaged beyond economic repair. So, the insurance is a good deal if the device gets replaced within that period and it’s less than the cost of a new device- right?
One nasty catch. Most policies don’t offer a brand new device, they offer a refurbished one. The latter might look shiny and brand new on the outside, but going by personal experience many of these are badly-repaired (and unreliable) customer returns on the inside. We’ve worked on many such phones, including ones officially “refurbished” by the manufacturer, and even those often fail to met up to the standards you might expect.
Sceptical? Let’s take a look at an iPad Mini that was officially refurbished by Apple, and arrived in our store after it stopped turning on.
When we opened this, it was obvious that both the Power Management Unit (PMU) and CPU had been replaced- something we would consider major work. Unfortunately, the motherboard was covered with shiny solder flux, and there was no underfill around the chips as you’d see in a brand new iPad. This underfill is needed to protect the chips from becoming detached if the device is dropped or bent, and there’s a very good chance that the lack of underfill is the cause of the fault.
Don’t forget- this was a replacement device officially supplied by Apple. It’s not an isolated case either- we’ve seen numerous officially refurbished devices of similarly-poor quality.
This is an advantage to having your device actually repaired by a known local business such as ourselves. The cost may appear high until you account for the cost of the insurance and realise it probably works out cheaper anyway! And you’re not paying through the nose for the “privilege” of having your phone replaced with someone else’s badly repaired problem handset that might have been returned more than once.
Conclusion
To be fair, we only looked closely at one insurance policy above. Others might be significantly more competitive- and we’re sure you can do better if you shop around or have a different phone.
Still, we feel that these “point of purchase” deals bundled with your contract by commissioned salesmen are generally poor value after you look at the actual costs and account for the deductibles/excess.
If you’re considering insurance, you should ask
- What’s the total cost I’m likely to end up paying?
- Are there deductibles/excesses on repair costs? These can derail an apparently tempting policy.
- What’s the effective price if I make one claim? Or two?
- How does that compare with the likely cost of pay-as-you-go repairs?
- Is the (usually expensive) cost of repairs for your just-released model expected to fall within a few months (as normally happens)?
- Does the warranty have any restrictions?
- Are promised replacements “refurbished”, and what is the quality of those likely to be?
