Question

Let’s say you got a smartphone last year. You paid $10 a month for the first year of insurance, and then you lost the phone. Your deductible is $200. Your insurance company will replace your phone with a refurbished version of last year’s model rather than a new phone. Was it worth buying smartphone insurance

Answer 1

Determining if buying smartphone insurance was worth it involves comparing the total cost of insurance, including monthly payments and the deductible, to the replacement cost of the phone. If the replacement cost exceeds the total insurance cost, the insurance was financially worthwhile. The concept is similar to how automobile insurance pools risk among many drivers.

Step-by-step explanation:

Whether it was worth buying smartphone insurance can be evaluated similarly to the way we assess the value of automobile insurance. We can compare the total cost of insurance for the first year including the monthly payments and the deductible, to the cost of replacing the phone without insurance.

If you paid $10 per month for insurance, that's $120 for the year. Adding the $200 deductible, the total out of pocket with insurance is $320. If the cost of a refurbished phone is more than $320, then the insurance was worth it from a financial perspective.

However, if the refurbished phone costs less than $320, then financially, the insurance wasn't worth it.

Just as car insurance works by pooling together the risks of many drivers to cover the costs for the few who experience accidents, smartphone insurance pools together the monthly fees of all the insured to cover the replacement costs for those few who lose or damage their phones.

Some people pay more into the system than they get out of it, while those who end up needing replacements get a good value from their insurance. It's a trade-off between risk and potential financial loss.