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

Discussion in 'iPhone' started by truth1ness, Sep 20, 2014.

  1. truth1ness macrumors regular

    May 8, 2011
    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):*

    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.

    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+.
  2. JayLenochiniMac macrumors G5

    Nov 7, 2007
    New Sanfrakota
    Best option: No coverage purchased with an Amex card offering extended warranty. You'll get reimbursed the purchase price + tax and you use that to cover the OOW replacement cost + tax, essentially making you whole during the 2nd year in the event of a defect.
  3. illutionz macrumors 65816

    Oct 2, 2007
    Rhode Island
    Just want to add that if you have Visa Signature Card such as Chase Sapphire/Sapphire Preferred, you have extended warranty as well for another year!
  4. HXGuyAZ macrumors 6502

    Sep 3, 2014
    How easy is it to use the AMEX extended warranty? Anyone have experience with it? I read over the Terms and it seems like a bit of a pain but I guess for "free" you can't really complain.
  5. JayLenochiniMac macrumors G5

    Nov 7, 2007
    New Sanfrakota
    Yes, I've used it before and it's not a pain at all. You simply put in a call to Amex and once approved, they'll credit you the purchase price + tax in the next billing cycle. Didn't need to provide a receipt or complete a claim form or anything like that (although they reserve the right to require them). They also reserve the right to reimburse you for smaller repairs like a screen replacement so getting reimbursed the purchase price + tax is not a given. This is decided on a case by case basis.

    I recommend sticking with Amex. A friend of mine tried to use VISA's extended warranty for a laptop and they made it such a hassle, requiring a mountain of paperwork obviously to dissuade customers. That was several years ago though so maybe it has changed.
  6. truth1ness thread starter macrumors regular

    May 8, 2011
    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
    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.
  7. JayLenochiniMac macrumors G5

    Nov 7, 2007
    New Sanfrakota
    That's not in dispute. Your OP is recommending no coverage. I'm saying no coverage + extended warranty protection provided by Amex is even better and costs nothing.
  8. HXGuyAZ macrumors 6502

    Sep 3, 2014
    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+.
  9. truth1ness thread starter macrumors regular

    May 8, 2011
    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.
  10. JayLenochiniMac macrumors G5

    Nov 7, 2007
    New Sanfrakota
    No problem. I did say "in the event of a defect" and this excludes physical damage.
  11. truth1ness thread starter macrumors regular

    May 8, 2011
    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.
  12. aneftp macrumors 601

    Jul 28, 2007
    You need to be extremely careful with Amex and other credit card companies if using zero percent financing. Since you are paying $30-40 a month installment, Amex will not treat it as a full amex subsidize or full price purchase.

    Another reason just to pay full price up front if doing ATT NEXT or Tmobile plans.
  13. Kohkane macrumors 6502a

    Jun 10, 2008
    Granted, I've never had this happened to me before. Although I did have a friend who cracked his iPhone 5 screen and just took it to a screen repair shop and they fixed it for $70 and was done in about 30 minutes. They also do full screen placements, and replaced back parts and what not.

    So technically speaking, even if you didn't get AC+ and something were to happen, wouldn't it still be cheaper to use a shop that would fix it for you? I also know that my Discover card would reimburse me for the costs.
  14. JayLenochiniMac macrumors G5

    Nov 7, 2007
    New Sanfrakota
    Yes, that's true. Amex can only reimburse you up to the purchase price + tax so it's best to buy at least the 64 GB iPhone 6 for the subsidized price of $299 plus tax as the OOW replacement price is also $299 plus tax, which you'll get reimbursed.
  15. ElectronGuru macrumors 65816

    Sep 5, 2013
    Oregon, USA
    Awesome OP, thanks for taking the time to put this together!
  16. tengorazon macrumors member

    Sep 30, 2012
    Where did that number come from? Is that the standard Apple charge? (I've never had to replace my iPhones ::knock on wood:: )
  17. Angler macrumors regular

    Mar 26, 2011
    If you drop the phone and break screen does Amex cover that?
  18. JayLenochiniMac macrumors G5

    Nov 7, 2007
    New Sanfrakota
    Only within the first 90 days. Most of us use a case or are careful enough not to drop it if carrying it naked. Never broke a screen since the original iPhone. "In the event of a defect" excludes physical damage.
  19. JayLenochiniMac macrumors G5

    Nov 7, 2007
    New Sanfrakota
    The OP has outdated info. OOW replacement price is now $299 for iPhone 6 and $329 for 6+.
  20. uttrekr macrumors member

    Jun 24, 2010
    Athens, TX
    I would also add that getting Applecare gives you free Apple tech support.
  21. Angler macrumors regular

    Mar 26, 2011
    Understood, thanks. I carry my phone naked as well. I have bought Apple care for my phones and when I go to sell them I use that as a selling point (since I am usually upgrading every year) and seem to be able to get another 50.00 for the phone compared to what others a selling them for.
  22. ApplePhy macrumors 6502

    Nov 7, 2013
    But don't these 3rd party shops replace the entire screen if it's cracked? And if so, how can you ensure its of the same quality Apple uses? These screens are incredibly thin, and engineered to be extremely discerning to the touch and to gestures.

    What kind of screen quality are yiu getting from these other vendors???
  23. JayLenochiniMac macrumors G5

    Nov 7, 2007
    New Sanfrakota
    You're still out $49 each year. $99 AC+ less $50. I also ebay my year-old 32 gigs yearly and consistently get $450 for them after I have at&t unlock the offed devices. I don't dispute you get more $$$ with AC+ but you're not quite recouping the cost of buying AC+ yearly.
  24. sviato macrumors 68020


    Oct 27, 2010
    HR 9038 A
  25. doodads macrumors 6502


    Jul 17, 2007
    East BF, TN
    I bought an iPod nano with my AMEX card. I accidentally put the nano through the washer and dryer, and AMEX reimbursed me for my purchase price. Later, my wife put the replacement nano we bought through the washer, and AMEX reimbursed me again.

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