Is gadget insurance worth it?

September 13, 2011

When Abby Speed was in Puerto Vallarta, Mexico two years ago, she left her $300 camera in her purse on a table at a cafe. Both disappeared.

Luckily she had invested in gadget insurance, so her camera (along with her laptop, cellphone and other electronics) was covered for theft with a $50 deductible. Speed says she is glad for the peace of mind that comes with paying Worth Ave Group Insurance a couple of hundred dollars a year to cover all of her electronics.

“I travel a lot,” the 29-year-old activities director from Dallas says. “Things get broken or stolen.”

With as many gadgets as many people now carry, the game has changed for consumers when it comes to warranties and specialized insurance. There’s no longer a simple answer.

Part of the problem comes with the portability of the devices. Some people go everywhere with a pricey gadget like an iPad. One big drop or an errant cup of coffee can be disastrous.

Aaron Cooper, marketing director for Worth Ave, says the top three claims categories for gadgets are: cracked screens, theft and water damage. The differences between gadget insurance and buying a special warranty can be subtle, but theft is one category covered by insurance but not in a warranty. Warranties are connected to mechanical failure while insurance is more built around human error. And insurance can be purchased at any point, while extended warranties usually have a time limit, often within 30 days of purchase.

Cooper says one thing that consumers often overlook is the real cost of their gadgets. You might have paid $200 for your iPhone, he says, but that’s because it was subsidized by the phone company. If you drop it in the toilet, the replacement cost could be closed to $700.

Worth Ave Group, which has long catered to the college crowd by insuring the growing number of electronic devices packing dorm rooms, insures anything from an iPad to a flat-screen TV either ala carte or in a package. The company competes with gadget insurer Safeware and Square Trade, which offers extended warranties.

SquareTrade analyzed iPhone failure and found that one-quarter will break down within two years. Three out of four of those are due to accidents, which aren’t covered by either by Apple‘s original warranty or its own add-on warranty program.

Square Trade CEO Steve Abernethy says his business has grown as the nature of electronics has become more portable and traditional warranties have covered fewer of the realities of today’s gadget owner.

“First, more of the electronics we buy are mobile and have a high propensity to fail when dropped,” he says. “So tablets, smart phones and laptops are much more common than desktops and simple-feature phone purchases. What consumers now care about is as much about protecting themselves from klutziness as it is about the reliability of the item, because these devices don’t like to take a drop on concrete or take a bath in a bad coffee spill. So warranties have much higher utility for more people by covering accidental damage from handling.”

Both Cooper and Abernethy believe consumers should reject the pressure to purchase an extended warranty at the time of purchase — a position that consumer advocates have traditionally taken. They are counting on consumers doing a cost-benefit analysis on their own that suggests they’d be better off knowing they had some protection.

The danger of the point-of-sale warranty extension for most consumers is simply not knowing what they’re paying for. And since sales people usually get incentives to sell the warranties, they’re not the most objective source of information.

For consumers, it comes down to deciding whether you want coverage beyond the traditional one-year factory warranty, which typically doesn’t cover any sort of accidental damage. And then, whether the likelihood of you having an accident with the device is worth the price of additional coverage.

Cooper suggests that if you have a cheap phone or laptop, then getting the extra coverage doesn’t make a lot of sense. But if the replacement cost is high, then it’s worth considering.

“Things just happen,” he says. “Accidents happen.”

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Sure, get one, and you can take your mind off the rest of the insurance industry 11/09/16/unemployment-in-u-s-deepens-hea lth-insurance-crisis/

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