In depth analysis: No coverage vs Applecare+ vs Squaretrade vs Carrier

There's a lot of articles and threads on the different warranty/insurance options but most are just copying and pasting the terms of each side by side with a few qualitative observations, they don't actually tell you how to calculate which plan (or no plan) gets you ahead the most. This is because the value is dependent on your own personal/historical risk of damaging your phone, and if you've owned several you have several data points to make your own risk estimates. Considering all the phones you will buy in your lifetime and that you have to keep buying insurance over and over I believe it is well worth it to go through the calculations one time in your life. Below I present a quantitative method to see which type of plan (or no plan at all) gets you ahead the most over the long term.

If you’ve owned several smartphones before simply calculate your percentage chance of damage and chance of loss by dividing total number of each incident over total number of iPhones owned.

Here are the assumptions in my analysis. I am focusing on people who have lost zero to one device per cycle as I think this is the vast majority, but it should still work for multiple losses. I’m comparing no coverage (using apple's reduced replacement device price), Applecare+/Squaretrade warranty (covers damage only, and I’m grouping them because their costs/deductables are about identical currently) , and T-mobile's insurance (damage and theft). I've used 5c replacement fees (these may be higher for 6 models) and assumed $900 for a new unlocked high end iPhone 6 Plus. Then, I picked some probabilities of my likelihood of nothing happening, of damaging the phone, and of losing the phone and calculated my expected values from the plan. I've damaged one iPhone out of the last four which is where I came up with the 75% nothing-happening value.


**Relevant fees for each option**
No insurance/applecare+: $0
Replacement of an out of warranty damaged iphone: $270 ($200 if previous iphone model at time of loss).
Total cost of one accidental damaged phone: $270
$900 (or whatever your phone cost) if lost

Applecare+ or Squaretrade for 2 years: $100
Replacement fee: $80
Total cost of one accidental damaged phone: $180 (savings of $90)
$900 if lost

T-mobile insurance: 8$/month > ~$190/2years
Deductible for replacement: $175
Total cost of one accidental damaged phone: $367
Deductible for loss: $175
Potential savings if iphone is lost instead of damaged: $533

**Analysis of my expected value**
Now the prices don't mean anything until you factor in your chances of actually breaking or losing your phone or nothing happening. This is called Expected Value. I picked some probabilities based on my past few iphones and calculate my expected value over the long term for each coverage option.

*Key: Chance nothing goes wrong, chance of damage, chance of loss of iphone,* **expected value**

No coverage
75% $0, 20% -$270, 5% -$900 **EV $-99**

Applecare+ or Squaretrade
75% -$100, 20% -$180, 5% -$900 **EV $-156**

T-mobile insurance
75% -$190, 20% -$367, 5% -$367 **EV $-234**

*the calculations (for copy/paste into calculator):*
0+.20*270+.05*900
.75*100+.20*180+.05*900
.75*190+.20*367+.05*367
etc

**Notes**
Applecare+ only goes 2 years. If the damage happens the third year you are back to paying the no coverage amount.

Squaretrade lets you add a third year for $30. Also allows up to four exchanges instead of two

This assumes 1 lost device. If you have a habit of losing multiple iphones within a product cycle then that skews you towards the more expensive plans, but I think this analysis should apply to the large segment of people who have a history of losing no more than one device.

**Conclusion**
Based on this analysis it actually appears No Coverage is the best option. This isn’t really surprising when you think about it because this is exactly the type of analysis these corporations are doing to make sure they come ahead. There is something to be said for “peace of mind” of not losing a big chunk of money, but I don’t like this argument if you are losing more money over the long term. Saving money long term is peace of mind.

The carrier insurance seems way too expensive unless you get mugged or drop phones in deep waters regularly. Getting both carrier insurance and applecare+ like I see some people do just seems like throwing money away over the long term.

There is, however, a couple considerations I want to add that could change the default recommendation for you.

1) Due to the larger iPhones your risk of damage estimate may be higher as you get used to it. Consider adding 10 or so percentage points of damage risk over your historical average to account for this. 10% risk bump brings the values closer, $-126 vs $-164, but still in favor of no coverage.

2) Squaretrade has an option to add a third year for only 30$ more (Applecare+ limited to 2). Now it’s hard to compare the value of this directly, but by extending the coverage another year that is more time that you could break the phone and thus your damage risk should be raised a few points higher (though replacement costs should have dropped by then, too). If you add another 10 percentage points to the damage risk because of the third year on top of the larger phone risk bump then the gap really narrows.

So in conclusion it is best for you to make your own risk estimates and plug them in and see which gives you the least negative number. However, some broad insights I came to are 1) No coverage is best over the long term for people with a history of not losing more than one phone every few cycles and who upgrade every two years or less 2) However, the size jump may be a justification for this iPhone release if you feel your risk of dropping the phone is higher as you get used to the new size 3) If you generally try to hold out for 3 iPhone cycles before upgrading, go with Squaretrade over Applecare+.

Guys, make sure to read the actual terms and conditions of your credit card warranties. They are not the same as Applecare+/Squaretrade/Carriers most of the time. Amex's Green Card for example:

Benefits are not payable if the Loss for which
coverage is sought was directly or indirectly,
wholly or partially, contributed to or caused by:
1. any physical damage, including, but not
limited to, damage as a direct result of
natural disaster or a power surge, except to
the extent the original manufacturer's
warranty covers such damage;

So you are basically getting the standard Applecare (without the +) coverage that comes with an iPhone for an extra year, not the + that covers accidental damage which is what my post is about and the reason you buy these plans. This is why I did not include these in my analysis. This is the basic Amex green card, perhaps their other cards are different but I can't go through each of the terms. If you can find in your terms document that it does then please do share the exact card and copy the relevant part of the terms to make sure it covers accidental damage.

Ah, gotcha. Yes, it's a good layer to add to that or any of the options. Just be aware it's not a complete replacement of the paid options which I think many people think it is, which is what I mistakenly thought you meant.

HXGuyAZ said:

Really the only think you're missing out on if you do something like AMEX vs AC+ is accidental water damage because if your screen cracks, it actually only costs $109 for the 6 and $139 for the 6+ to replace it, which is cheaper than doing AC+ for $99 + $79 for the incident. Heck, even two incidents, which is what you're limited to with AC+ costs more than doing two screen replacements outright for the 6 and about the same for the 6+.

Click to expand...

Great points, so that puts things even more in favour of no coverage. You could lower the cost of damage I had to represent a more average damage cost, something like 175 rather than 270 to reflect this.