Key Takeaways
- Phone insurance provides a cushion for expensive repairs and replacements
- Savings are flexible, but require discipline
- Consider the hybrid approach: use insurance until you have enough savings
Phones are indispensable, but protecting them can be expensive. If you crack a screen or drop it in soup, repairs could cost hundreds of dollars. Is it better to pay for monthly phone insurance or set aside money for emergencies?
This phone insurance guide will compare the pros and cons of phone insurance and emergency savings to help you decide what is best based on your lifestyle and budget.
Understanding Phone Insurance
Definition of phone insurance
Phone insurance is coverage provided by carriers, manufacturers, or third-party insurers. If you break or lose your phone, you can file a claim to receive a payout for qualifying expenses.
What’s typically included
Accidental damage, like screen cracks and spills, is the main point of coverage. That means if you spill a cup of coffee on your phone, causing liquid damage, the repair expenses can be covered.
Theft and loss protection are included in many phone insurance policies. If you’re prone to losing your belongings or you’re traveling somewhere with high theft risk, phone insurance coverage is useful.
Hardware failures after warranty: Warranties cover hardware failures and malfunctions, but they usually only last a year. If your phone warranty runs out, phone insurance may still cover hardware issues.
Depending on your phone insurance policy, you can also cover other risks and expenses. You may even be able to cover other devices you own, such as your laptop and tablet.
Costs
Phone insurance has a premium: a recurring cost you pay to keep a policy active. Premiums may be paid monthly, quarterly, twice a year, or annually. If you miss a premium, there is usually a grace period during which you can still make a late payment without hurting your coverage. Longer lapses will result in gaps in coverage and a potential policy cancellation.
The insurance deductible is your share of the cost. For any claim, you need to reach the deductible in out-of-pocket expenses first before insurance will kick in to cover the rest. A higher deductible means you take on more risk, so the insurance policy will cost less.
Understanding Emergency Savings for Phones
An emergency savings can be a piggy bank, a separate savings account, or an amount of money you specify for phone repairs and replacements. Many people choose to deposit a small amount into the savings every month as they get their paycheck. That way over the years, you get a large amount you can use for any emergencies, including phone issues.
Flexible savings
Essentially, the emergency savings is a self-funded mini insurance. Instead of monthly or annual premiums, which go towards an insurance company, you’re placing money into your own bank account. This fund is flexible. If you roll your ankle or you’re struggling with rent, you can dip into the emergency savings.
Are emergency savings enough for phone repairs?
First, you need to know how much a complete phone replacement would cost. It is a good idea to have enough in your phone repair savings to cover a completely new phone, that way you won’t be stuck without a phone in case you lose it. Budget phones may cost around $100, whereas expensive flagships can cost $1200.
Next, know how much expected phone repairs will cost. Common repairs include:
- Screen break: ~$200 - $300
- Battery replacement: $60 - $100
- Water damage: Up to $500
Phone owners need to rebuild the savings fund after every incident so that they continuously have enough in the bank.
Key Factors to Compare
Cost Over Time
Insurance premiums have a predictable cost over time. You are expected to keep paying it regularly, or risk losing insurance coverage.
Setting aside savings is completely in your control. Unless your savings account has an annual or monthly fee you can’t avoid, there is no cost. However, everytime you do need to break the piggy bank and use your savings, that is your own money you are using. You would essentially be trying to absorb the expenses.
Risk Tolerance
Are you comfortable with taking on risk yourself? How comfortable are you with spending a substantial amount of money on a phone repair or replacement? Risk tolerance is a huge factor that affects if you should go with your savings or a phone insurance plan. Insurance means if an accident occurs, you won’t need to pay a lot of your own hard earned money. However, not everyone is prone to losing or damaging their phone. Some people prefer being careful and absorbing the loss if they really do lose their phone instead of paying a monthly premium. Whether that’s worth it to you depends on your own comfort levels and finances.
Phone Value
How much did your phone cost? How much is it priced at currently? Your phone model can greatly impact how much repairs and replacements cost. New, high-end flagship phones can cost over $1000 to replace. Repairs can even cost $500 or more.
A mid-range phone will be more affordable as years go on, while a budget phone can cost less than $200 for a full replacement, making phone insurance not worth it.
Frequency of Claims
If you’re prone to accidents or frequently misplace your belongings, phone insurance might be a safer choice than using your savings.
Meanwhile, cautious phone owners who take extra care to not lose or damage their phones may prefer not investing in insurance and using their savings instead in case of phone problems.
Some phone insurance plans allow unlimited claims in a year, others do not. This is another point to consider when deciding on phone insurance.
Convenience
Insurance offers quick replacements. Some insurance plans even help you get quick repairs or same-day shipping for replacements. This is much more convenient and quick compared to using your savings if you don’t have enough funds yet. Then you might have to wait a while to save up enough for the repairs or replacements. During this time, your phone might be non-functional.
Taking money out of your savings means you have to go out and find a suitable repair shop when you crack your phone screen. You have to order your own new phone replacement if your phone is stolen. It is generally less convenient.
Flexibility
Insurance only covers phones or other electronic devices. The coverage also usually comes with a cap and deductibles.
On the other hand, savings can cover any need you have. If you’re running low on groceries or rent money, you can even take it from your phone repair savings fund. Savings are far more versatile. You are in control of where the money goes. For emergency savings to work well, financial discipline and good habits are required.
The good news is that a lot of phone insurance companies are offering more flexibility now that we’re in an utterly digital age. You can use flexible insurance to cover other devices and appliances, from gaming consoles to laptops. This improved flexibility has made phone insurance more popular in recent years. Imagine you can cover all the devices and appliances in your family for the cost of a few coffees a month.
Pros & Cons at a Glance
| Phone Insurance | Emergency Savings | |
|---|---|---|
| Fast replacement | Insurers have networks for fast replacements and repairs | Depends if you have enough saved up and can access a phone store |
| Flexibility | Poor, your premiums only go toward insuring your phone or other devices | Great, you can use funds for other purposes |
| Long term value | After several years, premiums can cost more than the phone | The funds remain yours to use |
| Risk | If you don’t make a claim, you pay for no gain | If an emergency happens, you will have to pay |
| Cost | Ongoing premiums, potential deductibles | No mandatory monthly cost |
| Availability | Coverage terms are limited | You may not have saved enough early on |
Scenario Analysis
Let’s analyze three distinct scenarios of whether you should use phone insurance, emergency savings, or a mix of both.
Case 1: Accident-Prone Teenager
Teenagers bring their phones everywhere, to parties and school and 3am snack runs. It’s easy for them to break or lose their phone. Frequent damage and loss make insurance a good choice because some phone insurance companies allow you to file unlimited claims. There is no cap.
Case 2: Careful Adult with Budget Phone
Budget phones can get surprisingly affordable these days. You can also purchase prepaid phones on monthly plans for very low prices. If you happen to be an adult who is frugal and careful about safe phone habits, a savings fund might be a better fit.
Case 3: Family With Multiple Devices
Families can benefit greatly from group phone insurance. It is cheaper than insuring each phone individually. If you have teens or children in the family, you can consider phone insurance for families with teens.
If your family also happens to have other devices, like laptops, PCs, tablets, and gaming consoles, you can pick a multi-device plan that covers multiple devices. This simplifies your insurance claims and allows you to obtain quick coverage for multiple devices in the household.
On the other hand, you could also set up a shared savings account. A savings account is a fantastic idea for families since it allows you to grow your savings together. Many savings accounts also offer interest that accumulates over the years.
Hybrid Approach: The Best of Both Worlds?
You can always connect insurance to savings, that way you can get the best of both worlds. Here are two ways you could do it:
Insurance for high value phones
Purchase insurance that covers your newer, more expensive phones. These phones tend to cost more on repairs and replacements. You can keep a savings fund for older and budget devices. This is great for people with multiple devices or families with multiple phones. It helps minimize risk and cost.
Buy insurance only for first few months or year
A big issue with savings is that for the first while, you might not have enough funds saved. Consider monthly phone insurance. It can serve as peace of mind and a financial cushion in the months after you buy a phone, when you don’t have a big enough emergency savings fund yet.
Plus, what if an emergency of another nature happens, like grandma breaks a leg? Then you would have to use your phone repair fund on the other emergency, draining your savings. Maintaining insurance until you feel comfortable with the amount of savings you have is highly recommended since it helps you avoid financial disasters.
Conclusion
The right choice depends on the cost of your phone, your phone habits, and financial state. If you’re someone who prefers careful phone usage and control over your finances, savings might be preferred. If you can’t spend a large lump sum on unpredictable phone repairs or replacements, insurance is the way to go.
Evaluate your own situation and do the math before deciding on savings versus phone insurance. You can also get quotes from the best phone insurance companies to easily see whether insurance is suitable for you.
About The Author
