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I normally don't pay for product protection plans or extended warranties on electronic devices, but I just got a new iPhone 4, and it sits at the nexus of portability (losable and drop-able) and high cost.

Here are the options I'm considering:

  • Getting the AT&T Insurance. At $14.00/month, this is pretty pricey, even though they seem to cover everything including loss.
  • SquareTrade. Costs half as much as the iPhone plan, but doesn't cover loss or theft.
  • Just going without coverage and buying a used phone if mine dies or leaves my possession. (I'm actually not 100% sure if this is possible since I don't see any way to put a SIM card in an iPhone.)
  • Checking with my insurance company to see if they offer personal article insurance. This makes me nervous, because I don't want my homeowners insurance to potentially go up in cost just because I lost my phone.

What are your thoughts? Am I over-estimating the cost of a lost or damaged iPhone?

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Insurance on something that you could replace out of your own pocket is almost always not worth it. If you have the discipline to put $1,000 in a savings account, and only use that to replace the phone, you'll be ahead, plus you'll also get to pocket the interest.

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    Agreed. In general, insurance should be used to cover catastrophic events. Assuming you went with the AppleCare insurance package at $69, if it costs you $600 to buy a new phone, do you put the chances of damaging your phone to the point of replacement at over 11.5%? and would you prefer to get the new version of an iPhone (iPhone 5.0) if you were to damage yours before next June (typical release date for iPhones)?
    – CrimsonX
    Commented Aug 23, 2010 at 13:59
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Since insurance is priced for profit, the price will be more than the price of a new phone multiplied against the chance of loss and payout. Otherwise insurance would not be offered since there was no money to be made by the insurance company.

The idea of insurance is that you are pooling your risk with everyone else. You all definitely pay a little (insurance premium) instead of any of you maybe paying a lot (when a phone is destroyed). The question is not whether it is a good investment (almost surely no), but whether the loss at a random time would be too crippling to be absorbed by you when it happened. If you can afford a new phone without financial difficulty if it were destroyed then you should generally not buy insurance.

One other factor could be that although you are in the same risk pool as everyone else (everyone pays the same rate), but your situation has a higher risk than most, insurance can be a better deal, though the better investment over time would be to correct the risky situation instead of buying insurance. This could be that you have a habit of losing things, live in an area where phones are stolen often, have pets that destroy your belongings, etc.

Statistically, you will come out ahead not buying insurance, but you are accepting an unknown outcome.

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Did you consider AppleCare?

http://www.apple.com/support/products/iphone.html

very iPhone comes with one year of hardware repair coverage through its limited warranty and up to 90 days of complimentary support. The AppleCare Protection Plan for iPhone extends your coverage to two years from the original purchase date of your iPhone.

This was only a flat fee of $69 (or at least it was when we bought our iPhone 4 models) which seems much more reasonable, particularly if you're planning to keep your phone for a while.

(and remember that iPhones magically turn into iPod Touches when you stop using them as phones, so their useful life is a bit longer than most typical smartphones)

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One thing to consider: the Apple service plan covers replacement of the battery in addition to the normal things you expect. Since the battey is not consumer replaceable, and, according to what I hear, is almost certain to wear out within the two year life of the phone, and is more expensive to have Apple replace than the extended coverage, it's probably worth it. (Disclaimer: this was told to me by my son who used an iPhone for two years before I got mine. I haven't independently verifies his facts. This also applied to the 3G and 3GS. I'm just assuming it's also true for the 4.)

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  • iPhone Battery will have ~80% of its original capacity after 400 charge cycles. apple.com/batteries/iphone.html
    – myron-semack
    Commented Aug 13, 2010 at 13:41
  • +1 This answer shouldn't be -1. It adds valuable information; I have an iPhone 3G whose battery lasts about 24 hours on standby these days.
    – Sean W.
    Commented May 10, 2011 at 22:25
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Regarding your third point:

Just going without coverage and buying a used phone if mine dies or leaves my possession. (I'm actually not 100% sure if this is possible since I don't see any way to put a SIM card in an iPhone.)

If the "iPhone" in "put a SIM card in an iPhone" is a potential second hand replacement that you were to buy in case of loss/theft then yes, you would be able to do this. That's kind of how GSM phones work. Without the SIM you can only call emergency numbers.

How to insert/remove SIM of an iPhone

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