The Truth About Credit Cards & Cell Phones

You might get plenty of protection from your credit cards, which means you don't need to pay extra for credit card services.

By SHARE

Cell phone carriers take in a good deal of profit from selling warranties, which is why wireless salesmen are often trying to scare you into paying for protection. What you may not know is that many credit cards offer similar protection, so if you’re worried about your phone, take the following two points into consideration:

[In Pictures: The Worst States for Millionaires.]

One, carrier insurance plans offer comprehensive protection against lost phones, damage, and other common mishaps, whereas credit card insurance packages typically don’t cover lost phones, stolen phones, or partially damaged phones that can still place calls.

Two, a carrier’s insurance plan will typically run you $4.99 to $11.99 per month, while credit card protection is free. And many credit cards, such as Visa Signature and American Express, offer extended warranty protection programs as well that beat the pants off of aftermarket manufacturer warranty plans, like AppleCare. To boot, they also offer “purchase protection” for 90 days, which covers loss, damage, and theft, just like the cell phone plans.

Banks offer much cheaper protection than carriers and phone manufacturers

Mobile carriers are quick to capitalize on customers’ worries. Many charge $5 a month or more to insure the phone, and come with high deductibles. However, if you buy your phone and pay your bills with your credit card, your bank may offer insurance for free. We’ve compiled a review of some banks that offer cell phone protection, as well as carriers’ programs.

The basics of banks’ and credit unions’ protection plans

Bank and credit union protection plans vary mostly in their deductibles, how many claims you may file in a year, and which credit cards are eligible. Across the board, you must use your card to pay for the phone and the phone bill. In order to file a claim, you’ll need the receipt for your phone as well as the latest monthly phone bill you paid.

Generally speaking, credit card insurance covers physical damage or theft, with caveats: you’re out of luck if the theft isn’t obvious and criminal, such as if you get pick-pocketed, or if your roommate steals it while you’re napping. You’re also out of luck if it’s damaged but still makes phone calls. It also won’t help you with software or network issues, normal wear-and-tear, or if the postal service or baggage handlers lose it. It also won’t cover you if your phone is lost.

Some other caveats: if you have another form of protection, such as a carrier’s cell phone protection plan, or insurance, the bank generally will only cover the deductible from the other protection plan less the deductible on the bank’s plan. In addition, beware of other caveats. Under some plans, you won’t be covered if you voluntarily part with the phone, if it’s confiscated by the authorities, or if you lose it at a construction site.

Citizens’ electronics coverage for students

Citizens Bank offers excellent protection for students. Not only does the cell phone plan come with a debit card, which is friendlier to dew-eyed youngsters with limited credit histories—but the checking account comes with warranty extensions as well. For a number of purchases, including the laptop a student buys when he leaves for college, Citizens will extend the product’s warranty for up to five years past the purchase date as long as the item was purchased with the debit card and the student keeps the receipt. The plan does not cover motor vehicles, used goods or computer software, but everything else is insured up to $10,000 an item and $50,000 per cardholder. This is a rare perk for student checking accounts, and is especially valuable given frequent travel, theft in dorm rooms, and the peril of eating near a laptop.

[See 10 Smart Ways to Improve Your Budget.]

Mobile carriers’ subscription insurance

Carriers’ opt-in protection plans are more comprehensive: they’ll cover loss, physical damage, theft, software malfunctions, and the all-important liquid damage. They do come with monthly fees and higher deductibles, though. Further, some premium smartphones warrant higher deductibles than others—check your carrier’s terms and conditions.

The verdict

Mobile carrier insurance policies are useful if you have a tendency to drop your phone in bodies of water, hate the dings and dents that a phone accumulates, and worry about software malfunction. The benefit of mobile plans is that they’ll insure lost phones, or ones whose software malfunctions.

In almost any other case, though, the deductibles are so high that insurance is rarely cost-effective. A new 32GB iPhone 4 from AT&T (if you qualify) costs $299; with the $199 deductible from MobileProtect, if you pay for nine months of insurance, you’ve just wiped out any benefit you’d get.

Financial institutions easily come out ahead in cell phone protection excluding damage and theft. They offer free coverage, and their claims limits are usually offset by their lower deductibles. For students, the Citizens Student Money Bundle offers comprehensive electronics protection, plus perks like online coupon codes and cash back on purchases made through the bank’s website.

Tim Chen is head nerd at NerdWallet.com, a site dedicated to helping consumer understand credit card offers.