AppleCare and Extended Warranties

A correspondent asked:

Should I buy AppleCare for my new iPhone? It seems like cheap insurance.

Nervous in Needham

Hi Nervous-

I would not buy the AppleCare insurance.

If you cannot afford to replace your phone, then that’s a yellow flag that you cannot afford to buy that phone and you should consider a less expensive option. You should self-insure against affordable losses.

Generally speaking, extended warranties do not offer good value, instead they offer peace of mind at a high price. The worst ones are usually offered by third parties (unlike AppleCare) as they have a strong financial incentive to make the claims process difficult.

Also, many credit cards provide free extended warranty coverage for certain types of claims.

Let’s look at some numbers to assess the value of AppleCare. I used the iPhone 8 Plus pricing on Apple’s website to do my analysis. Ignoring taxes, the prices are approximately the following:

  • New phone:  $700
  • Refurbished replacement phone:  $600
  • Screen replacement:  $100
  • AppleCare:  $150
  • AppleCare with theft protection:  $250

The “deductibles” for AppleCare coverage are:

  • screen:  $30
  • other damage:  $100
  • theft or loss:  $230

The cracked screen coverage seems trivial. You pay $150 for coverage that saves you $70 on the cost of the replacement screen. You need to crack the screen twice to nearly “break even” and Apple limits you to no more than two of those events. It is hard to see how that makes sense.

For “other damage,” you pay $150 to possibly save $500 for the replacement phone. You need to have a 3 in 10 chance of damaging your phone for this expense to “break even.” And, as I suggested, you may be covered by your credit card.

With the theft option, you pay a total of $250 to save $370 on the replacement phone. How many times has your phone been lost or stolen?

I recommend you self-insure and invest the savings in a screen protector and case for your phone.

There are two exceptions where AppleCare could make sense:

  1. Teenagers. If you think your kids are likely to damage or lose their phones then AppleCare may be worthwhile.
  2. Phone support. A lesser known feature of AppleCare is that it comes with extended phone support coverage. If you’re unfamiliar with the hardware and software and want to be able to call Apple for two years instead of just the first 90 days, that may justify the cost.

Otherwise, save your money. And, yes, I would generalize this to most extended warranties that cover vacations, appliances, cars, etc.

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