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pecuniumPhone insurance has always irked me. Back when Maia and I were sharing a Sprint line we had it: $7.99 per month, per phone, with a 35 fee to get a replacement. After she dropped her phone in a bucket we realised it wasn’t all that good a deal. She’d had the phone for more than a year, and with the $35 it was a total outlay of about 150, to replace a phone which wouldn’t have cost more than that to buy outright.
We tried, (and tried, and tried: it took splitting our lines) to get the insurance cancelled. My LG flip-phone, which finally died about a month ago, was insured for five years: total outlay, about 450, which would still have had a $35 fee on the top of. So I had to decide, when getting an iPhone 4S, if I wanted to spend $8.18 a month to insure it.
I did, but with reservations. 8.18 * 12 = 98. The fee to get a replacement is $169, which means a total outlay of $267, if I have to use it. At the end of 24 months it would be $365. The full cost replacement would be, if we assume the price of the 4S doesn’t drop any more, $550. That means I would save $185.
Which looks, on paper, to be a decent savings. But it makes me wonder at the profit margins on the phone insurance business. They aren’t sending you a new phone, rather they refurbish the other phones which are sent in, and send them back out. Even if they were sending out new phones, they’d be buying them wholesale. Let’s assume they can get a decent price, on case lots. Perhaps not as good as a carrier gets, but better than you or I. The list price, from AT&T is $550. Let’s be generous, and say they are only marking it up 20 percent. That means it’s $440 per phone.
Ok. In that case I’m a net loss, if I break a phone in two years (which assumes no one keeps the insurance past two years, because they can usually upgrade for the subsidised price of a newer model phone after that. If one drops the insurance, one just gets a new phone from one’s carrier, so keeping the insurance becomes a loss).
But how many people actually use the insurance? Let’s assume it’s one in ten, per annum (and if you make a second claim, that’s it, no more coverage).
(8.18*12)*10 =981.60+169=1150.60 If we take out the estimated $440 for the phone, we get an income, after product cost of $710.60 If it’s one in twenty, income is $1692.20. Assurion, the actual provider for a significant number of carriers (Sprint, T-Mobile, Verizon, AT&T, among others), says it’s actually one in four. On the flip side, if they are backing all those companies, I’ll wager the cost per phone; when they have to ship a new one; as opposed one they’ve had refurbished, isn’t as high as I guesstimated.
Consumer Reports, and Business Week don’t think they are worth it. The Business week article puts the profits of Assurion somewhere between 98 million, and .5 billion dollars. Assurion says that one in four cellphone users have some problem with their phones each year: I note they don’t say they have a claims ratio of 1:4,merely that of all users of cell phones, 1:4 has a problem. But even at the most conservative, they are clearing 98 million a year, which means, IMO, the amount they are charging isn’t really insurance, it’s a way to take advantage of distributed loss to overcharge people for what looks like a valuable service.
So I’m probably going to keep it for a few months; sock some money away, and then drop it. Odds are I won’t need to touch the money... my last phone was about seven years old when I finally managed to break it.
We tried, (and tried, and tried: it took splitting our lines) to get the insurance cancelled. My LG flip-phone, which finally died about a month ago, was insured for five years: total outlay, about 450, which would still have had a $35 fee on the top of. So I had to decide, when getting an iPhone 4S, if I wanted to spend $8.18 a month to insure it.
I did, but with reservations. 8.18 * 12 = 98. The fee to get a replacement is $169, which means a total outlay of $267, if I have to use it. At the end of 24 months it would be $365. The full cost replacement would be, if we assume the price of the 4S doesn’t drop any more, $550. That means I would save $185.
Which looks, on paper, to be a decent savings. But it makes me wonder at the profit margins on the phone insurance business. They aren’t sending you a new phone, rather they refurbish the other phones which are sent in, and send them back out. Even if they were sending out new phones, they’d be buying them wholesale. Let’s assume they can get a decent price, on case lots. Perhaps not as good as a carrier gets, but better than you or I. The list price, from AT&T is $550. Let’s be generous, and say they are only marking it up 20 percent. That means it’s $440 per phone.
Ok. In that case I’m a net loss, if I break a phone in two years (which assumes no one keeps the insurance past two years, because they can usually upgrade for the subsidised price of a newer model phone after that. If one drops the insurance, one just gets a new phone from one’s carrier, so keeping the insurance becomes a loss).
But how many people actually use the insurance? Let’s assume it’s one in ten, per annum (and if you make a second claim, that’s it, no more coverage).
(8.18*12)*10 =981.60+169=1150.60 If we take out the estimated $440 for the phone, we get an income, after product cost of $710.60 If it’s one in twenty, income is $1692.20. Assurion, the actual provider for a significant number of carriers (Sprint, T-Mobile, Verizon, AT&T, among others), says it’s actually one in four. On the flip side, if they are backing all those companies, I’ll wager the cost per phone; when they have to ship a new one; as opposed one they’ve had refurbished, isn’t as high as I guesstimated.
Consumer Reports, and Business Week don’t think they are worth it. The Business week article puts the profits of Assurion somewhere between 98 million, and .5 billion dollars. Assurion says that one in four cellphone users have some problem with their phones each year: I note they don’t say they have a claims ratio of 1:4,merely that of all users of cell phones, 1:4 has a problem. But even at the most conservative, they are clearing 98 million a year, which means, IMO, the amount they are charging isn’t really insurance, it’s a way to take advantage of distributed loss to overcharge people for what looks like a valuable service.
So I’m probably going to keep it for a few months; sock some money away, and then drop it. Odds are I won’t need to touch the money... my last phone was about seven years old when I finally managed to break it.
