# Is it better to pay an insurance deductible, or get an upgrade?

My wife's phone broke recently, and we called in to our phone's insurance program to ask for help.

The program is offering to replace the phone, at a \$149 dollar deductible!

The payoff balance for her phone is less than that (around \$100) - and she's qualified right now for an upgrade.

However, if we get the upgrade, we'd be starting on a new payment plan - for however much that phone costs.

Is there a simple way to determine which option is (economically) more sound? Assuming both phones we'd be getting are exactly the same, is it cheaper for us to get a perfect replacement and hold onto it until we've paid off the insurance and her old phone's balance? Or is it better to just get an upgrade?

You asked for simple, and I promise you this is... it just looks a bit math-heavy to start with because we have to handle a couple of different scenarios. Bear with me :)

I find the best way to deal with these kinds of questions is to put together a "Total cost" for each option, for a sensible amount of time, and see what the difference is. We'll include the current cost for both options, plus the subsequent costs for 12 months: I find that more useful than a straight "which is more expensive right now" because it includes the potential costs of the next upgrade, and any changes to the plan.

Let's throw some numbers together for the next 12 months (if your current plan is longer than 12 months, read the note at the bottom first)

First, write down the cost of these things

• m = number of months left on current contract
• a = monthly cost of current plan
• b = monthly cost of upgraded plan (if you upgraded with the same company)
• c = monthly cost of a new plan (the plan you'd choose if you didn't have to upgrade with the same company**)
• Pu = upgrade cost of current plan (the up front fee, not the monthly)
• Py = new phone cost (assuming you weren't intending to upgrade but were going to buy a new phone**)
• Pe = how much the current phone (if in working condition) would sell for on eBay

**The above assume that you have two options if you take the repair option (and only one option if you use the buy-out option). The two options we're assuming here are that you can either:

• Upgrade the current plan with a new monthly (b) and initial cost (Pu)
• An entirely new plan with a different new monthly (c) and initial cost (Py)

If you'd choose the same new plan regardless of whether you take the \$100 or \$150 option, there's no need to include both options: to simplify things you can just use the same numbers for both b/c and Pu/Py and the calculation below will still work.

When you've found and written down the above, just do the sums below to find your two total costs over 12 months. Nothing fancy, just plug the numbers above into the equation. eg if Pe (eBay value of the phone) is \$80, replace Pe with 80. Don't forget to do the parts in brackets first!

• Option 1: Repair the current phone, then sell it on eBay when you upgrade/switch plan later as normal
• 150 - Pe + (m * a) + ((12 - m) * c) + Pu
• Explained: 150 you'd pay now to replace the phone, minus the ebay cost (minus because you get it back), plus the rest of the current plan, plus the new plan for the rest of the year, plus the cost of upgrading at the end of your plan
• *Note that if you just want to keep the current phone once it's been replaced, and get a new plan, you can take both -Pe and +Pu out of this equation!

• 100 + (12 * b) + Py
• Explained: 100 to buy out your contract, plus 12 months of the new contract, plus the cost of a new phone

That's your total cost for both options for the next year.

Note: I'm assuming that your plan ends within the next 12 months. If not, just replace 12 in the above calculations with another term! You can also do this if you want to find out the price difference over a longer period (noting that if you upgrade to the same plan regardless of choice, you'll get the same answer for any period longer than your current contract)

If you repair your phone, when your current balance is paid off, could you get the same coverage for less money? Or would your monthly payment remain the same regardless? That would be the easiest comparison to make.

ie: Pay an extra \$49 to have the phone replaced [ie: the cost of using the insurance program for \$149, vs the cost of buying out your plan for \$100], get a slightly worse phone instead of upgrading, but save \$15 / month for the next 2 years. This would pay off economically within 3-4 months, but the phone would be older (not sure if you care about that).

• From the sound of it, they're not offering us the ability to 'repair' our phone, just replace it. We already took it to the store and asked for a repair, but no dice. So if you're suggesting we try to cut the cost by asking for a repair instead, it's not going to work. – Zibbobz Aug 5 '16 at 13:15
• However, the advice to ask if we'd be paying less per month by taking the insurance plan is a good question, and I'll take that one to heart, even if we're stuck with the initial \$149 down initially to 'buy in' to that option. – Zibbobz Aug 5 '16 at 13:18
• @Zibbobz See my edit - I presumed the insurance deductible was for the repair cost, not a replacement. However, this doesn't really change the answer. – Grade 'Eh' Bacon Aug 5 '16 at 13:19
• Aaaah, so it's a difference between what I'd pay - that makes sense to me now. Thank you for clarifying. – Zibbobz Aug 5 '16 at 13:20
• @Zibbobz Depending on your phone provider, the only plans which don't offer a new phone for "free" as part of the contract, might be plans with lower data caps. Therefore it may be impossible to save money by buying out your phone. However, if you are considering buying out your phone, look at changing carriers as well - this is the perfect time to rate shop. – Grade 'Eh' Bacon Aug 5 '16 at 13:23

I would go for the upgrade and cancel the insurance.

It's been 5 years since I left the post paid subsidized phone world and I'm WAY better off. I use ATT GoPhone and I buy my phones in cash. If I shatter my phone, I replace the screen or simply buy a new one. Sites like swappa.com make buying and selling phones a breeze and you save a bundle of money leaving the carrier subsidies and ridiculous insurance programs on the table.

I think you have a few choices that cannot be described by math alone:

Repair current phone: 149 Replace current phone with new model from carrier: 100 + cost of new phone Replace current phone with new model on payment plan from carrier: 100 + cost of new phone + finance charge (could be zero or cleverly hidden).

You can also replace the current phone with either a used or new bought from a separate party. Quite recently I was selling some gently used IPhones 4S for around \$140.

So really you have to determine what is most important to you guys. Is it important to have the newest model phone with laying out the least amount of cash now? Then by all means go with the payment plan with your current carrier.

Is it most important to be financially efficient, while having a good working phone? Then pay the deductible; or buy something gently used.

In my opinion, having a phone payment is a losing game, akin to buying a new car every three years or so. You are buying something on time that quickly depreciates and hiding the true cost of the item in "painless" monthly payments.

I'm going to guess you're on Verizon and your wife has an iPhone. I just went through this exact same situation with my mom's phone last week. When you're off contract with Verizon you're saving \$25/month on your plan (at least, I am), so staying off contract is big. If you do the monthly payment you're paying full retail over 2 years, without interest, so you do stay off contract at least.

Here's the thing, as long as it's a 16GB iPhone 5 or better, you're going to be able to Craigslist it for the cost of the deductible, no problems. To me that makes the decision pretty easy to make. As long as you can Craigslist it for more than the deductible, get the insurance replacement. Then when you want a new phone you can sell your old one.

Since you can sell the phone, I think that makes the comparison between the deductible and deciding to pay off the \$100 now and start payments on the new phone less relevant. The real comparison I'd suggest looking at is the value of the phone and the deductible.

• +1 - between the \$25/mo and the insurance cost, a couple can save enough by skipping insurance to buy a new phone outright every 9 months or so. – JTP - Apologise to Monica Aug 5 '16 at 23:59