Fraud Tip of the Day - February 3

Is cell phone insurance really worth it? Do the math yourself, then decide. The numbers may surprise you.

The next time you buy a new cell phone and the sales person asks if you would like to purchase insurance for your new phone, think twice. Cell phone insurance rates are about $5 a month with deductibles ranging from $35 to $100. In two years you will have paid $120 and once you factor in the deductible you are looking at having paid as much or, in many cases, more than the cost of a new phone.

Did I say new? I meant to say refurbished. Sending out refurbished phones instead of brand new ones is just another trick being played on you by the cell phone industry. How does $200 sound for a refurbished phone that you could buy new for $120?

Class Action against cell phone insurers

Some have called this practice deceptive because if you elect to purchase one of these protection plans your phone isn't simply replaced when it's damaged, lost or stolen. A class-action suit was filed in Miami back in 2005 that said:

"These premium payments do nothing more than create a right to have the opportunity to pay additional monies in the form of the so-called 'deductible' in order to receive a refurbished phone worth less than the deductible alone."

The claim was also made that insurers imposed unlawful and unfair conditions for filing a claim. Many went so far as requiring that the claimant fill out a police report if their phone was lost rather than stolen.

Another thing to remember is that new cell phones come with manufacturer warranties but they only cover equipment failure caused by defect or malfunction. If your phone is lost, stolen or damaged in any way the warranty does you no good.

Is there any reason to insure a phone?

There are some reasons to purchase cell phone insurance: If you have a history of losing or damaging you phone this may be a way of cutting your losses. If you've purchased a cutting edge phone for $600 insurance can take the edge off of your anxiety. Some people need the peace of mind that insurance provides. That's exactly what the cell phone companies say their insurance provides. The final decision is up to you but do the math first.