How to Choose an Insurance Plan for Your New Smartphone

Were you one of the thousands of fanatics up at 3:00am on Friday hoping to be first in line to pre-order your shiny new iPhone 5?

Embarrassing as this may be, I’ll admit it: I was one of those people in my pajamas furiously refreshing my cellular provider’s website.

Luckily, I didn’t have to wait too long and I began my upgrade process with relative ease.

Yes, clearly my phone is important to me, as I’m sure it is for countless others. But I didn’t realize just how important it was until last month when, while out with my buddies at a sporting event, my trusty iPhone 4 slipped off my thigh and plopped head first into my beer on the floor.

I immediately grabbed the phone out of the cup and was relieved it appeared to still be working. But just 10 seconds later, the screen flickered and went blank.

The liquid had short-circuited the guts of my phone and I watched it die in my hand.

I was then faced with the terrible reality that I had just been cut off from the “world” — no news, twitter, Facebook, contact list, boredom-killing games, trusty GPS…nothing.

Now what?

Buying another phone without a 2-year contract would cost me hundreds of dollars. My buddy sitting next me asked me if I had insurance on my phone. I didn’t even know there was such a thing.

Warranty extensions and damage insurance

When I got my very first iPhone back in 2007, my cellular provider didn’t offer insurance on iPhones. Apparently, I have been living in the past.

Since then, not only does my cellular provider offer warranty extension and damage insurance for iPhones, an entire cottage industry has popped up doing the same thing.

Even Apple has jumped on the insurance bandwagon, too.

The entire experience left me swearing I would get insurance when I got my new phone. And now that I have ordered my new iPhone, I have 30 days to get my insurance.

Enrolling your smartphone in an insurance plan

That’s the first thing I learned: you must enroll your phone in an insurance plan within 30 days of your purchase.

If you don’t choose Apple’s insurance coverage (known as Apple Care+) at the time of purchase, you must then physically take your iPhone to a store and have a Genius inspect it within 30 days of purchase.

The third party insurance guys won’t make you go into a store, as most don’t have one, but the 30-day window still applies, pretty much universally.

Read the fine print

The second thing I learned is that there are a lot of options. Since no two plans are exactly alike, you’ll need to read the “terms of benefits” very carefully to know for sure what is and isn’t covered.

So don’t just tick the “I agree” box here without reading. NO, seriously — it is important.

If you don’t know what is and what isn’t covered by your plan, then you might be giving yourself a false sense of security.

Some plans, for instance, extend your warranty beyond the standard one-year limited warranty that all new iPhones come with, while others extend the warranty and cover accidents – like when your iPhone decides to take an unauthorized swim in beer.

So if you want to cover stuff like shattered screens and water damage, then you need to get a plan that specifically covers accidents.

Now, not all accidents are covered. For example, if your house burns down in an earthquake, some plans won’t cover you, as natural disasters are specifically exempt from their coverage.

See? Reading the terms and conditions does make a difference.

But other plans do cover natural disasters, so if that’s important to you, it might be worth checking out those plans.

Also, check with your homeowners or renters insurance to see if they cover your phone. In many cases they will.

Insurance against loss or theft

Some cellular providers and third-party insurance plans offer an even higher level of protection on top of accidents: loss or theft.

For example, if you lost your phone in a cab or it drowns out at sea, and don’t have an insurance plan that covers those unfortunate mishaps, you’ll get nothing — nada, zilch.

So take heed of that fact before you take your phone on your next deep-sea fishing adventure.

Cancelling your insurance plan

But if you do lose your phone or just decide you want to cancel your coverage, some plans allow you to cancel your coverage at any time. You will receive a pro rata refund of the original purchase price, which is based on the number of days left in your plan.

Some plans make you pay a cancellation fee, so be aware of that before you decide to cut your coverage.

Deductibles, premiums, and claims

The last things you should consider when picking your insurance is the deductible, premium and maximum number of claims allowed under the plan.

The premium is the price you are paying for the insurance and the price will vary based on what is covered, who is covering you and the length of the coverage.

Some, like your cellular provider, charge your cellular bill monthly, while other insurers, make you pay for the insurance upfront.

If you ever need to make a claim, each insurance plan makes you pay a fee, known as a deductible. Deductibles can range wildly from as low as $49 to as high as $199 – plus sales tax.

Plans that cover loss or theft usually have the highest deductible, for obvious reasons.

Additionally, each plan limits the number of claims you can make. Some limit you to two or three claims per year, while others limit you to two or three claims for the life of the insurance contract.

So if you are particularly accident prone, you should go with a plan that allows you to make as many claims as possible.

Also, some plans limit the total dollar amount spent on dealing with your claims, regardless of the number of claims you file.

Lastly, some plans make you wait 30 days from the time you pay for the plan until it becomes active. For those that are particularly paranoid, look for plans where the coverage starts immediately.

Which company offers the best value?

That’s going to be up to you to decide. Some plans are inexpensive, but don’t offer a lot of coverage. Some are simply overpriced.

It is important to compare the out-of-pocket costs of insuring your iPhone against the cost of buying a new unsubsidized iPhone. For some consumers, paying for insurance doesn’t add up.

For me, the horror of losing my phone is still fresh in my mind, so I am not leaving the house with my new phone until I know it is covered.

The peace of mind is worth every single penny.

Cyrus Sanati is a frelance financial journalist whose work has appeared in dozens of leading publications, including The New York Times, BreakingViews.com, and WSJ.com. Follow Cyrus on Twitter @csanati