Insuring Your Smartphone May Be Smart

Editor's Note: Be sure to also read the other two parts of this series, iPhone Peace of Mind Comes at a Price and Protect Your Smartphone Without Insurance.

NEW YORK ( TheStreet) -- You just spent $600 on a shiny new smartphone -- make that $200 if you opted for a two-year contract. Should you also cough up the $8-plus monthly fee for insurance?

More consumers are adding this fee or considering it, but not just because it's expensive to replace a $600 phone. Smartphones have been elevated to a new tool in today's society, becoming a constant companion and a reliable assistant.

As reports come in about lost and missing phones or phones accidentally dropped in the toilet, more owners are adding the coverage to help grow the U.S. mobile insurance market to $8.6 billion by 2016, according to market researcher iGR. The good news is that there are a plethora of options to help you take care of that pricy device, from free to monthly fee.

But really, is mobile insurance worth it today?

I caved last year and bought insurance for the first time when renewing our family plan. This is not like me. As a long-time technology reporter, I've never been a fan of insuring electronics and PCs that are all too quickly outdated or reduced in price.

But with three new smartphones (scored for free during a promotion), my decision was not just peace of mind but to prevent potential whining we experienced under our prior contract when one member's screen cracked just months after signing.

Within six months, one family member lost his phone while traveling overseas. Paying the $130 deductible got the phone shipped overnight. Six months later, another member complained about his phone rebooting frequently. T-Mobile ( DT) replaced it for free because nothing was physically wrong with it.

And then 16 months into the contract, my own phone slipped into the water, never to hold a charge again. I tried drying it out, even sticking it in uncooked rice (does that really work?) No luck. I reluctantly paid the $130 deductible.

I figure I'm ahead financially, though I couldn't help thinking that I'd spent about $260 (insurance fees plus deductible) on my "new" phone, a model that had been out for nearly a year, especially when Google ( GOOG) was selling its new unlocked Galaxy Nexus for $349. Total investment to date for three, er, six phones: $692. Not bad.

Odds aren't good that your smartphone will survive its two-year contract. Asurion, the default insurance provider for the four major phone carriers, says that one in four people will lose, damage or have their phone stolen this year. (Other reports put the survival rates much lower).

"Obviously Asurion is seeing a large number of smartphones to be insured," said Bettie Colombo, Asurion's senior director of marketing communications.

But the disconnect is what a customer thinks a phone costs vs. what it does cost, she said.

In a recent survey, she said, "Consumers told us they expected it to cost $200. The reality of it is there's not a $200 smartphone on the market. Most smartphones could be anywhere from $400 to $700."

To help users determine whether insurance is worth it, take a look at statistics.

The Federal Communications Commission, reporting that 40% of all New York City robberies involved phones, teamed with the four major carriers last spring to create a giant database of stolen smartphones. The carriers promise to block stolen phones on their networks.

And if your phone is lost or stolen, chances are high that someone's going to peek at your personal information. Last spring, security software developer Symantec ( SYMC) purposely lost 50 smartphones in five cities for Project Honey Stick. Half were returned. All but two were accessed, with snoopers looking at email, files labeled "HR Salaries" and the "remote admin" app.

But, say mobile companies, theft isn't the biggest reason consumers file a claim. It's damage.

In a T-Mobile-commissioned survey of 1,000 smartphone owners, Kelton Research found that 33% had damaged their phones, while 10% had their phones lost or stolen.

SquareTrade, which insures smartphones for an upfront one-time fee, found that just 4% of covered iPhones were lost or stolen in 2010. Comparably, 24% were accidentally damaged.

The bulk of SquareTrade's claims are from accidental damage, said Steve Abernethy, SquareTrade president and founder. Its 2010 study of 50,000 smartphones found that 75% that were replaced were due to accidental damage. Within that, 77% were from drops. The iPhone 4 was at the top.

"Insurance (from the phone carrier) is not just covering you being a klutz and if the item stops working, but if you leave it in a cab and lose it. You pay a premium for it," Abernethy said. "Our data shows that very few incidents are related to loss and theft. So you're paying a big premium to cover the 4% that is lost or stolen. You basically cut the cost in half by buying insurance through SquareTrade."

Asurion's claims are quite different: 50% are due to loss or theft, 47% from damage and 3% malfunction. That could be because as the default insurer for most carriers, Asurion's numbers include all types of phones and unlike some alternative insurers, it offers loss and theft protection.

"As the insurer of more than 95 million consumers, Asurion has access to a large pool of data," Colombo said. "Given our broad set of coverage -- loss, theft, damage and out of warranty malfunction -- we are able to provide information across all of the major issues a customer may experience. As such, other companies may not have data on issues such as loss and theft."

The good news for consumers is that there is a much larger variety of choices today. You can opt for just damage coverage or full-service, pay by the year or month. The official insurance from the phone companies offer basic damage plans, starting at a few dollar a month. Alternative insurers like SquareTrade, GoCare and Assurant charge a one-time, upfront fee to cover just damage or more.

You can also opt to have smartphones included on some homeowner policies or, if you own an iPhone, buy the extended Apple Care warranty to cover hardware damage. At minimum, say all experts, get a good case for added protection and use free apps to protect data or remotely find the missing smartphone.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Tamara Chuang is an outside contributor to TheStreet. Her opinions are her own.

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