- in Savings
When you go to Best Buy, one of the wireless carriers, or wherever you buy a television or a high-end cell phone, don’t buy the add-on insurance. Ever.
This is a tax on the mathematically challenged.
Think about it. What are the odds that your phone will break within the two years of the service plan? If you buy a $600 phone and spend $10/month on insurance, you are spending an additional 20 percent of the value of the phone–per year. This is madness.
This same advice holds for televisions. If you buy a $600 flat screen TV and they are pushing for extra insurance, just say no. If you feel that you couldn’t afford to buy an additional new TV in the unlikely event that the one you purchased breaks, then frankly you should pull back from the purchase and get your financial house in order.
A Conflict of Interest
Sales people are often heavily incentivized to push this type of extra insurance for electronics items because the profit margins for the store on this type of insurance are quite high. This should serve as a warning. If someone is making huge margins off of you by selling you insurance, the statistics and probabilities are out of whack. You definitely need to purchase insurance like car or disability insurance that protects you from financial ruin–see note at the bottom of this post–but not for a $600 phone!
Honestly, when I was younger and dumber, I actually bought insurance for a land line phone. Amazingly, my phone actually broke during the service period. It was a lot of work to get the replacement through the insurance. I had to mail the phone to some service center, etc, etc, where they decided whether to repair the phone or let me get a new one. It was a real time suck and hassle. Also, technology moves so fast now with phones these days that you are better off being able to pick out whatever new phone you want if something goes wrong.
Buy Used or Lower End If Necessary
It’s time to be brutally honest. If you regularly lose or break your phones, you should a) buy cheaper phones, and b) learn to take better care of your stuff. You can get a super solid phone for $150 these days. Also, check Craigslist for used cell phones and flat screen TVs. People sell brand new stuff (like one month old) on Craigslist all the time. Other options are Ebay or Swapa (for cell phones and tablets), but Craigslist is usually the better deal if you live in a large city. If you constantly break or lose phones, then I’d buy that $150 phone linked to above used. At the below $100 price point, you have an almost disposable phone.
Since we are talking about electronics, I want to reiterate that I strongly encourage buying used stuff, especially when you are starting your financial life and building your emergency fund and financial buffer.
So don’t insure your cell phone. Ever.
(Please don’t take this post as opposing insurance in general. Life insurance, disability insurance, car insurance and health insurance are all crucially important at certain phases of life. More to come on these topics in the future.)