Should you EVER get mobile phone insurance?

It is possibly the most important item we own, but is it worth taking insurance out on a mobile phone? I find out just how expensive and pointless this type of cover can be

By Iona Bain

Mobile phones are so much a part of our lives now that it is unthinkable to be without one. So of course it makes sense to take out insurance against losing your life support machine, right?

Not necessarily. Having looked into the murky waters of mobile phone insurance, it seems to embody all that is tricky and troublesome about buying a financial product.

Take a basic old-fashioned dumbphone like my old Nokia slide, which you can still buy for under £30, and a great little performer it is if you really don’t need or can’t afford a smartphone.

The cheapest phone insurance shown on the 02 website is £6 a month, or £4.99 on Vodafone. No matter stupid or unlucky I might be in losing a £30 phone, why should I pay in insurance premiums over five or six months the entire cost of replacing it? In other words, it is one of those areas where it makes more sense to be your own insurer, take the risk yourself, and pay out if it goes wrong – you will probably be better off than buying a policy which after a year will have cost you more than twice as much as the phone itself. The same surely applies on slightly more expensive phones, perhaps up to £100 or more.

But when it comes to smartphones, the risk game changes. Suddenly the precious object in question is not worth £50 but £500. To insure an iPhone will cost you £12.50 a month at 02 and £12.99 at Vodafone. So after six months of insurance, you will have paid out £70 to £80 in premiums – which far from covering the cost of the phone as was the case with the Nokia, is only around one-sixth of the replacement cost.

These are the extreme cases. Like me you may have an in-between phone, and you may also quickly realise, once you go online, that you shouldn’t pay the prices asked in the shops for insurance.

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Not that it is easy to find out those prices until you are in the shop buying the phone! The websites for 02, Vodafone and Carphone Warehouse for instance are very low-key on insurance. Carphone, which was fined £245,000 by the Financial Services Authority in 2006 for mis-selling insurance, does not seem to feature it at all (though you can bet it will be sold you in the shop). 02 asks you to contact customer services to find out what your handset would cost to insure. Vodafone Cover Me Insurance has a ‘what does it cost’ link, but you can’t actually find out. The costs are in four bands, from £4.99 to £12.99 a month, but there is no listing of which phones are in which band. I can’t help thinking the reason for all this is that well-known phenomenon the vulnerable shopper: when you’ve just clinched the deal to buy your new consumer gadget, you are well softened up for the sell of an add-on insurance policy, which is invariably overpriced.

The editor of Mobile Magazine.James Atkinson told one newspaper last year; “ There is a lot of emotion involved when buying the latest mobile or gadget, so people’s judgement can sometimes be a little clouded at point of purchase and the major mobile retailers should not take advantage of that.”

Go online and you will quickly discover that the likes of Foneguard will insure an iPhone for £5.33 a month and Talkcover for £6.66 –Protect my Bubble and Barclaycard Gadget Insurance both offer insurance on basic phones from £1.49 a month and on smartphones at half the cost of the showrooms – prices which can’t be beaten. Both are underwritten by the same insurer, Assurant of New York, and according to their comparison table of charges they will insure Blackberry for £1.49 a month when it would cost you £5.49 at Talkcover, £6 at 02 and £9.99 at Vodafone – that’s some difference.

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For my smartphone, the Samsung Galaxy S, the premium is £2.99 a month – unlike the big high street names, the standalone insurers do not have any difficulty in providing an instant price for any model of phone.

Now it’s time to wade into the small print and find out whether phone insurance really is worth it in the age of £500 phones, or whether its reputation for rarely paying out when you do lose your phone is justified.

For a start, my quote for £2.99 is actually £3.99 when you add cover against loss, as well as theft. But set against 02’s standard £6 (which could be more for the Samsung, who knows) the key features are more or less identical: accident, unattended and attended theft, and worldwide cover. The excess is important, at Barclaycard/PYB for my phone it is £50, at 02 the standard is £25 but that might vary. And while 02 offers cover for accessories up to £25, Barclaycard/PYB includes £100 of unauthorised calls if the phone is stolen.

But then you have to get into the nitty-gritty of your phone disappearing. Typically, theft from a car or is not covered unless the phone has been hidden in a locked, yes locked, compartment in a fully-locked and security-protected car which has suffered a break-in. Theft from a building is not covered unless there has been a forced entry. The phone cannot be left unattended – not even for a moment, on a table in a pub for instance, all “reasonable precautions” have to be taken, any loss must be reported within 12 hours and a crime incident number obtained. These exclusions are about as good as it gets. Some policies stipulate that loss in any place where the public has access such as a school or public transport is not covered. Do not assume that just because you are covered worldwide, unauthorised calls made from your stolen phone are covered. Remember using the internet on a mobile overseas can cost literally 1,000 times more than at home – a 30-minute video download on Orange would set you back £2,400 in South Africa, according to moneysupermarket.com.

One newspaper last year reported how a newly-wed couple came back from holiday to a bill from Vodafone for over £8,000 – and ended up still paying 50% of it. They had replaced their Sim card with a local network one to avoid excess charges, and had the original stolen without realising it until they were about to come home. One answer here is to remember that the Sim card could be more valuable to thieves than the phone, and that it is easy to lock it using a PIN which would bar it from use when stolen.

Another hard luck story involved a woman complaining that FoneSure would not replace her iPhone after it vanished “as she sat surrounded by friends in a London bar”. It turns out that FoneSure had paid out £510 to replace the woman’s previous phone only a month earlier after her bag had been snatched. Some policies clearly warn that only one theft or loss within the insurance period will be paid out. But in this case, FoneSure said it was because there had been no evidence of violence when the phone disappeared, and the woman “did not see the thief”. The moral of this one seems to be don’t believe that an insurance policy relieves you of the responsibility to look after your expensive phone.

The Financial Ombudsman Service flagged mobile insurance sales as a particular cause for concern last May, after reporting a 66% rise in complaints, and upholding upheld 55% of them in favour of customers.

Typically people were sold cover even though they didn’t need it – usually because it was included in their home insurance policy or packaged bank account, but neither they nor the friendly salesman had checked. But in a fair number of cases, people actually didn’t realise they had taken out the cover with their purchase, so skilfully had it been bundled in. Which? said: “There is clearly some pretty poor practice in the industry. Too often, these policies come with a long list of exclusions that customers do not find out about until they have a claim turned down. Furthermore, many policies do not cover you for accidental loss – which is precisely what people buy insurance for in the first place.”

Personally, losing my phone would be an expensive disaster which I am determined to avoid. I have not up to now taken out insurance. But if I did, I would be taking a chance that whatever mishap occurred would actually be covered by the policy. As it is, I am taking my own risk ( I like to think that makes me that little bit more careful!)

For anyone who believes a policy will bring peace of mind, there are the usual three simple rules. Don’t buy insurance at the point of sale of your product. Don’t buy without checking best value online. And do read the terms and conditions extra carefully – or you may find that monthly premium was wasted.

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