Phone insurance doesn’t pay off for most users

If you’ve bought a cellphone recently, your head is probably still swimming.

There is a seemingly endless array of new phones with an equally endless array of options. Between applications and rate plans, accessories and coverage areas, the process has become so complicated that it can drive even the calmest consumer batty.

Even after deciding on a phone and its various accouterments, you still face one final decision: whether to buy insurance for your new phone.

Consumer experts say that in most cases, the answer is no.

“For most consumers, it’s not worth the money,” said David Kolata, executive director of the nonprofit Citizens Utility Board. “It only potentially makes sense if you have a very, very expensive phone, but if you’re like most consumers, it’s not really a great deal.”

Why? Well, for one thing, it’s not cheap. In a review of thousands of consumers’ cellphone bills, Kolata’s agency found that roughly half the customers bought cellphone insurance, at an average cost of $5.64 a month.

That might sound like a deal, but over the course of a year it adds up. In some cases, you’ll be required to commit to a two-year contract. By the time you’re done, you’ve paid more than $130 in insurance premiums. Most phones don’t cost that much new.

Even if you buy a more expensive phone, there are other considerations. Linda Criddle, president of the Safe Internet Alliance, says consumers should check their phones’ warranties. If damages are covered for the first year, why buy insurance?

If you decide to buy an insurance plan, read the description carefully. Are there restrictions? In most cases, cellphone insurers will not cover damage caused by water or other types of accidents, such as dropping the phone.

“An alarming number of phones end up in toilets,” Criddle said.

Many consumers have no idea what is covered in their policies and what isn’t, Kolata said.

“Often, the insurance plans don’t cover everything you’d think they would,” he said. “It’s always wise to read the fine print.”

Before buying a policy, check to see whether there is a deductible for obtaining a replacement phone. If you’re required to pay $50 in addition to your monthly payments, you’re likely better off forgoing the insurance and buying a new phone on your own.

There are other issues as well. Kolata said one study showed the average cellphone is in circulation for about 18 months before a consumer discards it. In most cases, consumers ditch their phones not because they’re lost or damaged, but because they’ve become obsolete, he said.

Apple has released a new version of its popular iPhone almost every year since its debut, and some other companies have updated their phones every six months.

In many policies, insurance companies provide replacement phones that are either the exact model you bought or refurbished products.

Getting a refurbished phone two years after you bought it can leave you with an old clunker while your friends have the latest, greatest phone.

“You remember the Razr?” said Allan Keiter, president of MyRatePlan.com, referring to the popular Motorola phone that was released to stunning sales in late 2004. “That’s like an antique now.”

Keiter said many cellphone insurance plans aren’t what consumers think. If you don’t care about getting a new, state-of-the-art phone, you can probably buy a replacement phone on EBay for less than the sum of your insurance premiums.

“I would say on balance, I probably wouldn’t do it,” Keiter said of insurance plans, then offered one caveat: “Unless you’re one of those people who loses something almost as soon as you touch it.”

jyates@tribune.com