Note: Jonathan Zschau is a Boston-based attorney and a specialist in consumer rights.
UPDATE: SquareTrade has objected to some of the statements and characterizations in this article. The company has some good points, which are published in full here.
As well as a good case or bumper, should you buy an extended service plan to protect your iPhone?
These service contracts are commonly referred to as “extended warranty plans,” “protection plans,” or “insurance plans” and promise to insure your iPhone from defect, accidental damage, and sometimes loss or theft.
The problem with extended service contracts is that they don’t offer you much more than you are already entitled to through your iPhone’s warranty, AppleCare, or existing consumer protection laws.
Although these service contracts do offer additional protection from accidental damage, theft, or loss they are also fraught hidden conditions, exclusions, and deductibles, which ultimately detract from their utility. Except for a very small minority of unusually accident-prone iPhone owners, these extended service contracts are a waste of money.
Extended service contracts do tend to vary from one company to the next, so let’s focus on three different plans: iPhone service contracts offered by Phonephix, SquareTrade, and MobileProtect. These companies’ websites appear to offer great deals: “Phonephix will repair your iPhone and if we can’t we’ll replace it;” “SquareTrade is the #1 Recommended iPhone Warranty;” “Avoid costly replacements and enjoy next day delivery with MobileProtect.” All of this can be yours starting at around $5 to $10 a month. Protecting your iPhone has never been easier, right?
Hold on. First and foremost, we have all encountered these extended service contracts before. These iPhone-specific plans are not much different from those extended warranty programs or, “protection plans,” that you decline every time you buy something from your local electronics superstore. There are reasons why extended service contracts have a reputation for being a waste of money; let’s see why these iPhone plans aren’t any different.
Protection from Defects.
The language of the actual agreements appears to offer protection from defects, even though they characterize the coverage in different ways. Phonephix describes its coverage as protecting from “defects in materials or workmanship;” SquareTrade covers “mechanical or electrical failure;” MobileProtect goes even further, stating that it covers “all risk of direct physical Loss to Covered Property.” However, that’s not the complete picture.
Each of these agreements specifically excludes coverage where the damage is of the sort that is already covered by an existing manufacturer’s warranty. MobileProtect excludes “[l]oss due to Mechanical and/or Electrical Failure occurring during the term of the manufacturer’s warranty,” while Phonephix and SquareTrade go even further and exclude the same if your iPhone is covered by an existing warranty, optional manufacturer service contract, or insurance policy.
The savvy iPhone owner needs to know that, insofar as manufacturing defects are concerned, these extended service contracts are an unnecessary and duplicative form of protection because all new iPhones already include Apple’s One-Year Limited Warranty. As its name implies, the One-Year Limited Warranty lasts for one year after purchase. If you also bought AppleCare, which is Apple’s own service contract, your iPhone is protected from defects for two years. Phonephix’s and SquareTrade’s extended service contracts specifically exclude coverage from defects through the life of other pre-existing service contracts and, therefore, AppleCare as well.
If your iPhone develops a defect up to a year after purchase, Apple will fix it –- free of charge. Schedule a Genius Bar appointment and you’ll have your defective iPhone replaced in less than thirty minutes. It’s that simple. If you want more than a year of coverage, consider purchasing AppleCare. If manufacturing defects are your concern, don’t spend the money on one of these plans.
It’s extremely important to understand not only whether your iPhone’s defects are of a type that is covered by these extended service contracts, but also whether the defects are of a degree that will necessitate redress. In practice, Apple’s One-Year Limited Warranty and AppleCare generally cover even the most trivial of defects – these service contacts do not. Each of these three plans exclude loss due to “cosmetic damage.” Phonephix seems to go even further, stating that your iPhone must be rendered “inoperable.” In all three cases, this suggests that your iPhone must exhibit an exceedingly high degree of loss of functionality before it becomes eligible for coverage.
Consider this: a discolored iPhone screen, in the opinion of Phonephix, may not render your iPhone sufficiently inoperable so as to be eligible for service or replacement. What if your iPhone’s body develops hairline cracks or fractures? Will SquareTrade or MobileProtect characterize your iPhone’s defect as “cosmetic?” A strict interpretation of these agreements suggests that they may. Insofar as defects are concerned, these plans do not provide as much coverage as they may seem to.
Protection from Accidental Damage.
OK, so these extended service contracts don’t really provide your iPhone with additional protection from manufacturing or design defects. At least they will protect your iPhone from accidental damage, right? Not so fast. Some of these plans require you pay extra for accidental damage protection (e.g. SquareTrade’s plan) and they all sport robust exclusionary sections, which may generate further confusion about precisely what is (and isn’t) covered.
Before we go any further it’s worth mentioning that none of these three extended service contracts specifically define “accidental damage.” They do, however, devote an awful lot of space to defining and excluding types of damage, which often may be caused by “accident.” Specifically, Phonephix’s and SquareTrade’s service contracts go far to exclude certain types of damage as being non-accidental and, therefore, not covered.
Although the agreements vary in their content, here are some of the types of damage that may be excluded from coverage.
– Normal wear and tear;
– Theft, mysterious disappearance, or misplacement;
– Damage caused by software viruses;
– Damage caused by reckless, abusive, willful or intentional conduct;
– Cosmetic damage (i.e. damage that doesn’t affect the “functionality” of your iPhone);
– Loss or damage to or of batteries;
– Exposure to weather conditions;
– Damage caused during shipment between you and service providers.
The emerging question is: what, if anything, do these extended service contracts protect your iPhone from? The takeaway is that they may not provide you with as much protection from accidental damage as you may think. If you still think that one of these protection plans is for you, just remember that no two are alike and you should take the time to determine whether a particular plan like one of these is worth the ticket price – plus the deductibles…
Beware: High Deductibles.
All three of these plans impose deductibles in one form or another. A deductible is the out-of-pocket expense you must pay before the company will step in and cover the cost of repair or replacement. According Phonephix’s extended service contract, you’re on the hook for a $50 deductible on the first claim, $100 on the second claim, and $150 for each subsequent claim. Under SquareTrade’s extended service contract, there is a $50 deductible for each claim based on accidental damage. MobileProtect’s deductible ranges from $99 to $199.
Add these deductibles to the price you paid for the protection plan and you have already spent nearly as much as a brand new iPhone (with a contract). Why not just save the money and upgrade to a new iPhone next year?
What are their Obligations?
A careful reading of these agreements reveals other concerns, in addition to the limited scope of coverage and high cost. The language of the agreements provides the companies with a lot of wiggle room in regards to precisely what they are obligated to do when presented with an iPhone that actually meets the stringent requirements for repair or replacement.
For example, Phonephix’s agreement gives them wide latitude in both effectuating repairs and selecting replacement units. The standard is not a brand new iPhone, or even a fresh Apple-certified refurb, but only a phone with “similar features and functionality.” SquareTrade’s agreement is only slightly more specific. Phonephix’s agreement even goes so far as to exclude the requirement that they provide you with a replacement iPhone that is the same color as your old one. There are no guarantees about the quality or type of parts that Phonephix will use to repair your iPhone; the agreement does not even specify who will perform the repairs.
First, the extended service contracts limit their liability, generally to the original purchase price of the iPhone. Typically, this means that once your claims, in aggregate, reach the original purchase price of your iPhone, the company is no longer obligated to cover your loss. This means that, in practice, SquareTrade, Phonephix, or MobileProtect may end up refusing to service or replace your iPhone after your first or second claim.
Second, take a look at whom you are actually dealing with. You should take the time to research the companies before purchasing a plan that you may need to rely on months or years down the road. The Better Business Bureau is a good place to start. Be sure to read the service contact and identify all of the parties you are contracting with. For example, SquareTrade is rated A+ by the BBB. However, if you are located in Arizona, California, Oklahoma, New Mexico, Washington, Wisconsin and Wyoming the SquareTrade contract indicates that you are dealing with the AMT Warranty Corp. According to the BBB, at the time this article was written, the AMT Warranty Corp. has a BBB Rating of F on a scale from A+ to F — food for thought.
Third, recovery is sometimes contingent upon your performance of certain, often time-consuming, obligations. For example, insurance plans that protect against loss or theft frequently require that you file a police report immediately upon the discovery of the loss or theft. Your failure to do so will likely be good cause for the insurer to refuse to reimburse you for your loss. Although a perfectly justifiable condition, after taking the premium, deductable, and the time and effort required to file a police report into account you may find that the value of the protection plan is arguably significantly diminished. Have you ever filed a police report before? It’s not a quick process.
Finally, if the corporation that holds your service contract goes bankrupt, your are going to be out of luck because there will be no practical avenue for you to seek redress. You should seriously consider how this risk impacts the overall value of any service contract. A lot can happen in two or three years. Apple Computer isn’t going anywhere anytime soon, but what about the AMT Warranty Corp.?
These iPhone protection plans are just another variant of those oft-disappointing extended warranty plans. Your iPhone’s warranty, AppleCare, and relevant consumer protection laws already insulate you from the risk of manufacturing and design defects. Many extended service contracts offer less protection than the average consumer may think. If you still believe you require additional protection from accidental damage or theft you should at least choose a well-regarded and established insurer and take the time to understand the specific language of whatever type of insurance you choose to purchase.
Note: Jonathan Zschau is a Boston-based attorney. None of the opinions expressed herein constitute legal advice.
Note: Thanks to Eli Milchman for assisting with the research for this article.