As Forrest Gump’s momma used to say, “Life is like a box of chocolates; you never know what you will get.” That begs the question, is there a way to buy chocolate insurance? You know, just in case you get a box full of crappy pieces. You can buy insurance for just about anything else today, so why not? I just got suckered by my mobile phone carrier into buying iPhone insurance, which I now greatly regret, but more on that later.
Not only has the variety of products and services available for purchase expanded exponentially, so has the variety of insurance products. If I was worried or paranoid enough, I think I could probably spend every dollar I earn on insurance. It seems like a never-ending list of offers for insurance against real or perceived risks. Let’s list some of the more common types of insurance available to individuals, not to mention less common products such as kidnapping insurance for high-wealth individuals.
Types of Personal Insurance Products:
- Medical insurance
- Dental insurance
- Vision insurance
- Life insurance
- Short-term disability insurance
- Long-term disability insurance
- Critical illness insurance
- Accidental death and dismemberment insurance
- Business travel accident insurance
- Personal Travel accident insurance
- Accident insurance
- Auto insurance
- Homeowner or renter’s insurance
- Liability insurance
- Legal insurance
- Identity theft insurance
- Mortgage insurance
- Title insurance
- Travel insurance
- Divorce insurance
- Tuition insurance
- Interest rate insurance
- Pet insurance
- Credit insurance
- Burial insurance
- Flood insurance
- Individual Product insurance
- Social Security (insurance)
- Unemployment insurance
- Workers compensation insurance
So, you get the idea. We are constantly bombarded by offers for insurance. This was not a common practice for our ancestors. If something really bad happened, they were either SOL or obtained the assistance of family, friends, and neighbors. Speaking of neighbors, the Amish still prefer the old ways. They insure themselves as a community. Your house just burned down? No problem. The community gets together to build another. You can’t afford your hospital bill. No problem. The church pays the cost. Your house burns down again? Um, I suspect they will look at you cross-eyed but probably still get together to build you another house. After that, it might be problematic. I’m not Amish, so I just don’t know the protocol.
Anyway, in 1965, Congress passed a law to exempt certain Amish and Mennonite religious orders from the requirement to participate in Social Security, Medicaid, and other government-mandated insurance programs. They are now also exempt from Obamacare. That’s right. Don’t you wish you lived in a tight-knit community now?
Some religious groups believe that insurance represents a lack of faith in god and an unwillingness to accept his will. But I suspect that few people are hard core enough in their faith to believe that god actually wanted to blow their house down and doesn’t want them to try and build another. Instead of using commercial insurance products, religious communities often simply insure themselves as a way of sharing risk. It’s a great idea if you can stop unsavory people from taking advantage of everyone else. Our government and the insurance industry have a hard time detecting and stopping fraud or risky behavior, which is a major driver of insurance costs.
Here are some thoughts I had on some new insurance products I might be able to sell:
- Gambling insurance (because you know you’re going to lose, right?)
- Plastic surgery insurance (for celebrities who just can’t help themselves)
- Tax insurance (for tax cheats who bet on IRS incompetency)
- Pregnancy insurance (it’s illegal to buy children, but you get the full health “claim” if you turn it in)
- Election insurance (for politicians who can’t help but take inappropriate selfies)
- Food insurance (why bother with a lawyer over food poisoning if you can just file a claim?)
- Bad decision insurance (this one is great for everyone; it gets you a do-over)
Back to the problem of over-insurance that most of us have. Most financial advisors will tell you that insurance is only appropriate for protecting you from low-probability catastrophic loss. Things like a serious illness or destruction of your house. If your car is expensive enough, that would qualify too, but not if you have an old rust bucket. It isn’t useful for things you can easily afford to replace. I should have learned my lesson about buying product insurance after I tried to get Best Buy to fix a CD player on warranty. After three failed attempts, I finally gave up trying to get them to fix it properly or replace it.
So, it was out of character for me to accept the iPhone insurance offered by my carrier, AT&T, last month. A 64GB iPhone6 costs about $749 new if you have to pay full price, but for only $6.99 per month, you can be protected from any kind of loss or damage. Because I have teenagers who seem likely to mistreat their device, I grudgingly accepted the offer. But now I regret it. I should have insured my own family myself.
Within a month, one phone was terminally trashed due to a liquid leakage that got into the iPhone. Great, I thought! I’m covered and it only cost me $6.99 for the first month plus a $199 deductible. That’s a $543 savings, which is the best you can do! How wrong I was. Here is what I didn’t know.
First, the insurance provider that most carriers use is Asurion, which has a horrible reputation for providing non-functional reburbished replacement phones. Yes, you are most likely to get a refurbished phone, and a lot of them still have problems. So, you might never get a completely working phone or, if you do, it may take a long time to get one that is new or like new.
Second, Apple offers AppleCare for only $99, which covers all phone replacements for only $79.
Third, even if you didn’t buy AppleCare, Apple offers non-warranty repairs or replacement at reasonable prices. An iPhone6 battery replacement is only $79, a screen replacement is only $109, and it is only $299 to have the entire phone replaced. And that is for a new iPhone6, not a refurbished one! That means the Asurion insurance is really only saving you $100 maximum, minus the cost you paid for the monthly premiums, but you get a refurbished replacement that might not work. In the worst case, it costs you more than an Apple repair and you still have to pay the monthly insurance premiums.
Because I’m a bit of a geek, I decided to make a chart showing the cost of monthly premiums compared to the cost of buying a replacement for an uninsured iPhone6 from Apple for $299, which is the worst-case situation for someone with no insurance. Each colored line represents the insurance cost for 1 to 6 people. Each gray line is the cost of a full replacement phone.
For a family of 6, you pay enough in insurance premiums over 24 months to pay for three new iPhone6s (total loss claims) or nine screen replacements! For a family of 4, you pay more than enough over 24 months for two new iPhone6s or six screen replacements! For a single individual, it takes longer to pay enough in premiums to cover the cost of a new phone, so it is more of a risk. Still, if you are single, you ought to be able to save enough to cover the cost of one phone. It is obvious that a family can easily insure itself against small losses such as this.
So, why do we buy insurance on small stuff? I suspect it is just about marketing and fear. It often sounds like a good deal because we think the risk of loss is high while the cost seems low, but it’s really a very bad financial move. I received a replacement device from Asurion via FedEx the day after I filed the claim, and it was wrapped as if it were a new iPhone. Great-I thought! But the battery would not hold a charge, so I knew it had to have been refurbished. So, to avoid weeks of further hassle, I sent it back, cancelled my claim and bought a new replacement from Apple for $299. The insurance wasn’t even worth the cost of one monthly premium and the deductible. I prefer to never have to deal with this, or any other product insurance company, again. I’ll insure myself, thank you.
So, the next time someone offers to insure that new gadget you just bought, politely say no thanks—I don’t need the hassle. Or, you can just shop at return-friendly stores like Costco. They will take just about anything back, no questions asked.