Why I Said “Yes” … and then “No” to My Cell Phone Protection Plan

Let me state unequivocally that I don’t do protection plans or extended warranties. Not for a television or a dishwasher or a vehicle. Instead of forking over an extra 5 bucks every month for everything I ever purchase, I smugly self insure by keeping my emergency fund intact. Besides, when Dave Ramsey says that 50 to 80 percent of extended warranties/protection plans go for commissions, I see opportunity. “Why not,” I ponder, “pocket that commission money myself?”

Confession time

Now that I have thrown my shoulder out of its socket by patting myself on the back, I have a confession to make. When I recently purchased my new Droid Incredible (my first ever smart phone), I sincerely intended to nix the protection plan.  However – as I held that sleek new phone in my hand – well, here is what happened:

Sales Rep, “Sir, would you like to include the protection plan with your purchase?”

Me, “How much does it cost?”

“7.99 a month. This includes all data restoration, an extension of the original manufacturer’s warranty, and basically anything that could happen to your new Droid.”

I suddenly had a flashback of a previous cell phone which had leaped off my belt holster to its death in our toilet. Then a vision of my new Droid laying dead in bottom of our toilet bowl. “Does the protection plan cover dropping the phone into your toilet?” I asked.

“Certainly. It covers any damage of any type. Even losing it.”

I felt myself weakening.  “So. $7.99 a month. That’s it?”

“There will actually be an additional $90 if you need to use the plan. After all, this is a $600 phone. (pause) Should you choose the plan, you could cancel it at any time.”

“Well…OK. Sign me up.” I eerily heard myself say, wondering if I was having an out of body experience.

A Day Passes

After I got home, I definitely had buyer’s remorse…not for the phone, but for the protection plan. I was ashamed of myself for acquiescing to purchase something I didn’t believe in.

Of course the nerd in me showed up so I ran the following analysis:

The key in figuring this plan (or any insurance plan) is to estimate if you would use it often enough to justify the expense. In this case, I am paying $8 a month plus an additional $90 deductible, so the break even equation to replace my $530 dollar (NOT $600), is:

(“x” months) ($8/month) + $90 = $530

The answer is 55 months, meaning if I use the plan in less than 55 months, I win.  If I don’t need it for 55 months, the cell phone company wins. Because I am not sure I can go 4 years and 7 months without damaging my phone, the protection plan starts to sound pretty good.

BUT

Three things:

1. I am eligible for an upgrade in 20 months. At that time I can buy a superior new phone for around $150 (what I paid for my Incredible). So…my break even time now drops from 55 months to 20 months.
2. If something happens to my Incredible in the next 20 months, I am not obligated to fork out $530 for a new Droid Incredible. I have other options such as buying a used one on Ebay or selecting a  less expensive model.
3. This one is a stretch, but here it is: If you are part of a Verizon family plan (which we are) and if one of the other family members qualifies for an upgrade (my wife does) and if this family member is not interested in upgrading (my wife isn’t), that upgrade can be transferred to another line. In our case, IF I was to destroy my phone, I could use Jan’s upgrade to replace my phone at the discounted price of about $150. If she needs another phone before her new upgrade becomes available, we could pay retail for a much less expensive phone (she doesn’t have or want a smart phone).

So now my question is this:

Even if I ignore point 3 above … Can I go 20 months without destroying or losing my phone? If past history is any indication, yes. In the 8 years I have been using a cell phone, I have killed only one: the toilet incident. If I had been paying $8 per month that entire time, my insurance premiums would have added up to $768. Hmmm. I am thinking that being self insured is making more and more sense.

Update

I tried to cancel my protection plan online, but was not able to figure out how to get it done. Makes me wonder if they somehow want that cancellation to be a difficult task.  I then called the store and dealt with a sales rep who, after reminding me of how the plan works, cordially cancelled it for me.

Now that it’s done, I feel good about it.

I just have to make sure I keep my smart phone is smart enough to avoid the toilet.

Readers: Do you buy extended warranties?  If so, for what items?  How about cell phone protection plans?