Consumer IQ

Mint.com Facebook Fan Q&A: Are Wireless Protection Plans Worth It?

cell phone

A question was recently asked on the Mint.com Facebook page: “Should I buy my wireless carrier’s equipment ‘protection’ plan?”

MintLife columnist and consumer advocate Christopher Elliott tackled the issue. Here’s what he had to say:

Question: My wireless carrier offers a one-year warranty on new and refurbished phones. But if something goes wrong with your phone more than two weeks after you bought it, you have to pay $35 to get it repaired or replaced in one of its stores. The alternative is sending the phone back to the manufacturer, but then you can be without a cell phone for a couple of weeks.

I recently bought a refurbished phone the company. It broke after three months. It was clear that it wasn’t refurbished at all, yet you still have to pay the $35 to get it repaired or replaced, even though it is under warranty. It seems a little steep.

The only way to avoid this is to pay an $8-a-month equipment “protection” fee. Maybe it’s just me, but didn’t you think that insurance was supposed to cover loss and damage – not lousy manufacturing?  – Barry Graham, Washington

Answer: Of course it should. There’s a lot that isn’t right with this picture.

First, a little background: extended warranties are huge businesses. Consumer electronics companies collect billions by selling them to nervous consumers, but the average claim rate on a warranty was just 1.39 percent in 2011, down from 1.45 percent the year before, according to the trade publication Warranty Week.

Protection or Insurance?

A few years ago, one enterprising wireless company that shall remain nameless began offering additional “protection” that, as you mentioned, acted more like insurance. A closer look at the fine print on its service plan reveals that it’s underwritten by an insurance company. So it actually is insurance.

Nothing wrong with any of that — except that it plays on our worst fears. We worry that the device we’re holding in our hand with all of your important data on it will suddenly melt down.

Extended Warranties

In a perfect world, we shouldn’t have to worry about that. Your cell phone should work as advertised. If it fails, your manufacturer should replace it at no cost to you. Your normal warranty should cover most malfunctions. And that includes “refurbished” phones.

But regular warranties cover almost nothing these days, creating a robust market for costly “extended” warranties that offer you more guarantees. And why stop at the $35 repair fee when you can be persuaded to take out a monthly “protection” policy? Puhh-leeze.

My point is, all of these extras should be unnecessary. Your cellular phone ought to work, and if it doesn’t, it should be covered through the regular warranty. The extended warranty and protection should only be needed if you’re in a dangerous line of work or you’re accident-prone.

I used to have one of those kinds of jobs. Years ago, I worked as a scuba diving instructor and even though I kept my cell phone in a plastic bag to prevent water damage, I couldn’t prevent a seasick student from ruining it. I will not tell you how that happened, except that it wasn’t damaged by water.

What the Future Holds

Fortunately, technology is changing so quickly that in the future, most cell phones will probably be completely disposable. So when one stops working, you will simply recycle it and buy another one. That day can’t come soon enough. It will put an end to an era in which wireless carriers unjustly enrich themselves.

To this consumer advocate, the extended warranties and protections you’re describing look scammy. I would let your contract run out and find a wireless carrier with more reliable phones.

Do you have a question for consumer advocate and MintLife columnist Christopher Elliott? Head over to the Mint.com Facebook page and ask away!