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Insurance for iPhone makes little sense

| Thursday, July 15, 2010

NEW YORK -- Absent-minded iPhone users can now insure their devices against loss or accidents. But with a $12 monthly fee and a $199 deductible for the latest model, it might make more sense to just learn to be careful.

Asurion, an insurer of consumer-electronics products, has started a new policy that will cover iPhones that are lost or stolen, or get damaged whether dropped on the ground or into a pitcher of beer. Cracked screens, a common iPhone mishap, will be replaced, even if the phone otherwise works.

It's the only insurance plan for the iPhone authorized by AT&T Inc., the exclusive wireless carrier in the United States for Apple Inc.'s popular smartphone.

Replacing a phone can be costly. Although the iPhone 4 costs $199 or $299 with a two-year contract with AT&T, customers would need to pay the full retail price of $599 or $699 to replace a phone in the middle of the contract.

Repairs aren't cheap, either. Tekserve, an Apple retailer and repair shop in New York, charges $149 to replace a cracked screen and $99 for a broken microphone or charging port. (Apple didn't responded to repeated inquiries on repair service charges at the company's stores.)

Nonetheless, the value of the new insurance product is questionable.

"These policies aren't worth it," said Mike Gikas, senior editor of Consumer Reports magazine. "You are paying more than the phone is actually worth if you lose it later in the contract."

Gikas said that the best option is to buy a used phone from a website such as eBay, or get an older one from a friend, until the contract is up. He said the overwhelming majority of users do not lose or break their phones, making the premium prices far too high.

Consider this: The plan costs $12 per month, and to get a replacement, a customer must also pay a $199 deductible for the iPhone 4 (The deductible is $50 or $100 less for some older iPhone models).

An insured owner who loses a phone after a year of use would have paid $144 in fees on top of the $199 deductible. That would be a total of $343, about half the price of a new phone. But the chances of losing or breaking a phone are far below 50 percent, making the price for the policy too high for the risk. And according to Asurion, the replacement phone might be a refurbished model.

And what if the owner merely cracks a screen• Based on those figures, it would cost about $200 less to simply repair it at Tekserve.

But Asurion spokesman Tim Stadthaus said the savings over buying a new phone, if lost, makes the policy a good value. He said loss or damage of phones is more common than people think -- and the insurance means customers won't get socked with huge replacement costs.

"There is a high demand for a quick, easy, lower cost way to receive a replacement," Stadthaus said in an e-mail. "Consumers want the peace of mind of knowing that for loss, theft, damage, plus out-of-warranty failures, they have a comprehensive solution."

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