The great iPhone insurance swindle
A few days ago, I wrote about my purchase of the latest consumer gadget - the Apple iPhone.
Unlike many others, I didn’t queue and the transaction was smooth but I was concerned that I was mis-sold insurance for the device. The conversation went something like this (I didn’t record the exact words at the time - but I wish I had):
O2 sales representative - let’s call her Emma (because, according to my sales receipt, that was her name): “Would you like any insurance for your iPhone? It’s only £7.50 a month and covers you for theft, accidental loss or damage not covered by the warranty but it’s only available at the time of purchase - not afterwards - so you would need to take it out now.”
Me: “No thanks - I know I’d be committed to the contract but even so that that’s a lot of money over 18 months. I’ll take the risk of another £269 to replace the iPhone.”
Emma: “Are you sure, because it wouldn’t be £269 - it’s more like £600 for a new iPhone from O2?”
Me: “How can that be - the handset isn’t subsidised, so I should only need to pay for a new handset at the normal retail price?”
Emma: “We don’t make the rules… that’s Apple.”
I subsequently agreed to buy the insurance, after checking that I could cancel at any time.
Yesterday, I asked about insurance in a Carphone Warehouse store and was given a similar response. I also asked in an Apple Store and was told that they thought it was just the cost of a new iPhone but that I’d need to check with O2.
Hmm… I smell a rat here. Especially when the O2 website says that:
“[…]insurance must be purchased within 28 days of activating your iPhone account with O2.”
So, not at the time of purchase then.
If got even worse when I read a PC Pro article about iPhone first impressions, from which I quote:
[in respect of] “O2 pushing £7.50/month insurance, to cover the situation that in the case of a lost iPhone, O2 will require the unlucky punter to buy a new phone and undertake a second contract”
[…]
We checked with O2 this morning and, unbelievably, this is true. If you lose your iPhone without insurance, then you will have to splash out on a new handset, and take out a new contract, paying two monthly tariffs at once. Now that is a costly mistake.
UPDATE
O2 has changed tack this morning, and is now claiming that customers won’t have to pay for two contracts at once, but they will have to source an iPhone on their own.
Now, the exact wording in the terms of service (under “Ending the agreement”) is:
“8.3 If this Agreement is ended during the Minimum Period, you may be required to pay us the monthly subscription charges up to the end of that Minimum Period. This does not apply if you end the Agreement for the reasons in paragraph 8.4 or if you purchase a new iPhone from us, but in this case you agree that a new Minimum Period will apply.
8.4 You may end this Agreement by giving us written notice if:
(a) we break this Agreement in any material way and we do not correct the situation within 7 days of receipt of your written request;
(b) we go into liquidation or a Receiver is appointed over our assets; or
(c) we increase charges for calls, messages or data that form part of your inclusive allowance or your Line Rental Charges, or change this Agreement to your significant disadvantage, in accordance with paragraph 9.2 of the General Terms, provided you give us a minimum of 30 days’ written notice (and provided you notify us within one month of our telling you about the changes). This does not apply where the increase or change relates solely to Additional Services in which case you may cancel, or stop using, that Additional Service.”
[Emphasis added by the author for clarity]
I’m no lawyer (so please don’t interpret anything written here as legal advice) but that sounds like I can just buy a new iPhone (from O2) and connect it to the account whereby a new 18 month contract will start but, crucially, there is no mention of the price of the replacement.
After spending much of the day responding on the Apple discussion forums (and not having received a response to my online query via the O2 website), I called O2’s customer service department on 08705860860. After a 20 minute discussion, I got confirmation that:
- A replacement handset would be available at the current recommended retail price of the iPhone.
- The original contract would be ended if a new iPhone was purchased; however a new 18 month contract period would commence.
The exact text of the response I received from O2 was:
“Hello Mark,
As per our discussion today. If you were to purchase a replacement handset you would pay the Recommended Retail Price for the replacement (as of the 13/11/07 it is £269, this price is subject to change). However, please be assure that you will only have to pay the same price as any new customer and would not be required to pay a premium due to the lose [sp.].
The only concession you would need to make is that your contract would have to start again from the time of purchasing the replacement please see terms and conditions (relevant section follows).
“8.3 If this Agreement is ended during the Minimum Period, you may be required to pay us the monthly subscription charges up to the end of that Minimum Period. This does not apply if you end the Agreement for the reasons in paragraph 8.4 or if you purchase a new iPhone from us, but in this case you agree that a new Minimum Period will apply.”
[…]
Kind regards and enjoy your I-phone [sp.],
[Name removed to protect the O2 employee’s privacy]
O2 Customer Service.”
That sounds perfectly fair to me, so why are the iPhone retailers pushing insurance on people who probably don’t need it? Sure, £269 is a lot to stump up if you lose your phone but it’s a big difference from the £600 that I was quoted for a new handset and £135 is not a small amount for insurance that I probably don’t need (chances are my household contents insurance covers me - albeit with a large excess). It seems to me that O2 are preying on consumers’ insecurities (and Carphone Warehouse seem to be even worse, based on the contents of an Apple forum thread).
I’m surprised that Apple would risk their strong brand dealing with companies that operate in this manner (I guess that’s what happens when you deal with the Devil - i.e. pretty much any telecommunications company) but I’m now seeking confirmation that my insurance has been cancelled without charge (I believe that UK law gives me 14 days to cool off from any insurance policy and I’ve yet to receive any written details of the cover) as well as a goodwill credit on my O2 account to cover me for the worry and inconvenience that this has caused. I’ll post an update if there’s any significant news on this…
Posted: 23:36 on Tuesday 13 November 2007 under iPhone.
Comments: 17
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Comments
Comment from Pengranger
Time: Thursday 15 November 2007, 7:22
Hi. Nice blog. You are right that you are provided with a period of 14 days after receipt of the full terms and conditions of the policy. If you cancel, and have made a payment during this period, you are entitled to a full refund - you would probably need to request it as I doubt it would be automatic. Incidentally, you should have received at least a Policy Summary at the time of the sale. If not, I’d complain to the firm.
Mobile phone insurance can seem expensive. The better policy cover unauthorised calls, which means if someone uses your phone to make calls after a loss or theft, as long as you’ve met the notification requirements, you won’t lose out. There has been an occasion in the past of an £8000 bill being run up. I guess the iPhone will be a major theft target!
Pengranger
Comment from Iain
Time: Wednesday 28 November 2007, 21:38
I would like to say thank you for clarifications, I was told by Carphone Warehouse sales rep who said that it will be my risks if I lose iPhone therefore have to pay for remaining 18 months contract. Thankfully I didn’t take it as I feel the insurance shouldn’t cost more than the handset! He told me that even replacing the current contract with new iPhone won’t make any difference of my duty to pay for remaining term of the contract. I think Carphone Warehouse staff needs to be given good telling off by all the customers! He deliberately played on my insecurities of high costs of contract terms to persuade me splashing out for expensive insurance.
Comment from NTW
Time: Thursday 3 January 2008, 17:29
carphone warehouse yet again - still at least you can always tell when one of their staff is lying, their lips move
Comment from Duncan Ritson-Elliott
Time: Monday 25 February 2008, 22:01
Relative to your blog post above, it would be great if you would take a look at the iPhone insurance at http://www.2u.co.uk/iPhoneInsurance/ and let people know what you think.
You can insure your iphone at any point up to 6 months after purchasing your iphone, and it covers you for all the points listed at http://www.2u.co.uk/iPhoneInsurance/
Comment from Duncan Ritson-Elliott
Time: Tuesday 26 February 2008, 8:35
So given the choice of
*£7.99 a month (which also covers repairs for minor damages etc) or
or
* £270 (which then also involves an additional 18 month contract at a minimum of £35 per month ie £630 - plus the £270 = £800)
- which would you take? Personally, I’d take the smaller amount of £7.99 a month.
Comment from Duncan Ritson-Elliott
Time: Tuesday 26 February 2008, 8:37
Correction - That £800 - should read £900 (its a bad maths day!)
Comment from Duncan Ritson-Elliott
Time: Tuesday 26 February 2008, 18:15
I understand what you are saying - It is good to look at insurance as being about risk and financial benefit. For that reason, I second your view about not preying on insecurities – better to look at it cold and clinically, looking at the financial risks and rewards.
There is also a personal / emotional / subjective side to it - it is always a personal question-and-answer as to how long you would want to be without your iPhone, laptop, phone, or whatever item you are insuring, and how much you want to be protected against (if you are out of the country are you covered, or how much time you can afford to spend sorting it out if you do it yourself) - the more it matters to you, the more it is likely that you would want to insure it.
Good news - I have just found out that the underwriters have lowered the price of the iPhone insurance, so it is now on the Standard policy at £5.88 a month, so it is now more cost effective to insure your iPhone.
This means that the 13 month cost that you mentioned in your example above would be £76 rather than £103.
It is worth pointing out that the figure you gave above for the replacement cost of “anywhere between £35 and £899″ - that £35 is only for the price plan part - there will be a bare minimum of £270 on top of that – so a total of £305 (£450 if SIM free).
Another element to consider if you don’t have insurance is that £35 is only the basic, lowest price plan option. The other price plans are £45 and £55 per month, so you have a full term cost of £810 and £990, plus the £270 cost of replacing the iPhone.
Plus, if you have your iPhone without the contract, ie a SIM-free unlocked version as many do, then you would not get the subsidised cost of any replacement. The £600 figure which you mentioned on the 2u site was totally true – that was the price of getting an iPhone a few months ago. This has now come down to around £450.
Currently the going rate for an unlocked iPhone from a reputable supplier is £450 including VAT. Yes, you can get it cheaper elsewhere - but good luck with that. From experience, we tried 2 other suppliers before finding a decent provider, and had the hassle of claiming the money (£350+ each time) back from/through eBay where we got it - not impossible - just a big hassle.
The closer you get to the end of your phone contract then the less the immediate financial benefits of iPhone insurance – or any mobile phone insurance – because you can just upgrade. Then it is more about saving the hassle, rather than the hassle and the cost.
For this reason, there is nothing to stop you say 2 or 3 months prior to coming out of contract, stopping your insurance – then if, as and when you upgrade to a new handset, insuring that if you want.
The ‘claim on your household insurance’ argument is one that often gets bandied about – but when you actually consider the excess fee on most house insurance policies (often £100+), plus what a claim will do to the cost of you house insurance next year, it is not usually a viable option – or at least – a last resort.
Yes, insurance companies exist to make money – but they can effectively manage the risk as well – both financial and hassle-risk. I personally had to claim for a £400 phone last year and only had to pay the excess then I was back in business – after 5 months of paying the insurance at £7.99 a month ie £40. The whole process took 2 days, without wrangling with the networks (good luck with that one too).
Thankfully I have not yet had a need to claim on my iPhone insurance, but a friend who did NOT have insurance showed me his iPhone which he had dropped badly onto concrete – the screen was totally shot – and he just look SO disappointed – A 50 year old man, and he was just so disappointed that his new ‘toy’ was ruined. He is going to claim on his house insurance because he said that was his only option and just had to accept what it would do to his house insurance premiums next year.
Comment from Mark Wilson
Time: Tuesday 26 February 2008, 20:22
@Duncan - You make some good points (although my reasoning behind saying that the bottom end of the range is £35 was that in the last month you would probably just stump up the last month’s rental and not be bothered about the phone - effectively you would be free to go where you liked at that point).
And I do understand what you are saying about accidental damage - this is the first phone that I can truly say I would be upset about having destroyed by dropping it.
It’s good news that the underwriters have dropped the price - and once you get down to that sort of level then it does become less of an issue - who knows, I may even take out a contract at that price - any chance of any further discounts 
?
I’ve enjoyed our virtual discussion though - thanks for dropping by my blog and for taking so much time out of your day to comment.
Comment from Duncan Ritson-Elliott
Time: Wednesday 27 February 2008, 8:35
Mark,
Thanks. On the 2u iPhone Insurance there is no ‘12 month contract’ like many other insurers insist on - the product stands on its own merits - if you dont want it, cancel it. If you want to continue the insurance protection then you would continue paying the monthly premium.
You would simply pay the first 3 months premium online, then pay by monthly Direct Debit for however long you want.
Again, you can cancel at any point - for example a few months befeore the end of your contract. You can then re-insure your new phone as and when you get it.
For anyone who wants to have another look at it, it is at www.2u.co.uk/iPhoneInsurance
Comment from Tranker
Time: Wednesday 5 March 2008, 20:20
My theory is that I have bought an expensive phone and therefore extra care should be taken not to lose it, get it damaged. Accidents happen and if the case is that my iPhone gets lost etc. I have to cope with that and use my own insurance policy of buying a dirt cheap handset to attach to the contract or use an old handset, I’ll be damned if Im paying another 135 quid just in case as I am on an 18month contract anyway which would be 202.50 (thats if they even do half years?) in which case your insurance policy might as well be buy two iPhones, silly really!
Comment from Duncan Ritson-Elliott
Time: Thursday 6 March 2008, 8:27
Yes, you are always best to take near-obsessive care of your expensive phone, but here’s the thing …
You would be paying £5.88 a month for however long you insured it for - and I would recommend that you do it for the early part of the contract - the later into the contract then the closer you are to a potential free or discounted upgrade.
18 months at £5.88 = £105.84
With the insurance you will not then be bound to a further contract.
You could use an alternative phone for the rest of the contract period - but you wil be paying a high price for a data price plan - you couuld get the calls and text part of the price plan much cheaper else where. Plus you have the cost of the alternative phone - albeit cheaper than buying an iPhone, it is still likely to cost something.
And to be honest, at least for me, after having used an iPhone for a while, going back to an ‘ordinary’ phone is going to be like losing your car and going back to cycling everywhere.
Comment from Rob Malvisi
Time: Wednesday 9 April 2008, 11:35
Mark,
During a protracted discussion with O2’s press office regarding this matter, we pointed out paragraph 8.3 in their iPhone terms and conditions, which stated:
“If this Agreement is ended during the Minimum Period, you may be required to pay us the monthly subscription charges up to the end of that Minimum Period. This does not apply if you end the Agreement for the reasons in paragraph 8.4 or if you purchase a new iPhone from us, but in this case you agree that a new Minimum Period will apply.”
We received the following response:
“The customer simply buys a new iPhone for the normal price of £269 and we transfer the contract of the lost/stolen iPhone onto the new iPhone, so that the customer can keep the number. ”
Pointing out that this appears to contradict their terms which state you need to take out a new contract, they referred to an internal expert and came back again with:
“Rob’s question about how an existing customer activates a new iPhone with their existing account (i.e. when they replace their iPhone). In this instance all a customer has to do is put their SIM in the new iPhone, synchronise their new iPhone with their computer and log on to iTunes again. They are then led through a light version of the original activation process and all they need to complete this is their Mobile Phone Number. Some customers may find their Wifi isn’t working after this process, which can easily be rectified by contacting O2 Customer Services who will reset their MAC address (only an issue when putting an existing SIM in a different iPhone).”
I replied that the above statement was not factually correct - the phone arrives with the SIM in place, and again they came back with:
“That’s the only cost - £269 for the new device, if you’re not insured, and then carry on with the old contract.”
So, they state that you do not need to take out a new contract, just complete the old. So good news for the consumer - so they state. Has anyone actually tried this though?
Looking at the terms again today the relevant section has changed and does not refer to it at all.
“8.3 If this Agreement is ended during the Minimum Period, you must pay us the monthly subscription charges up to the end of that Minimum Period.”
As for insurance or not, that is simply a personal choice in my opinion. It relates to the individual’s attitude to risk and their ability to self insure, whether a phone costs £100 or £1,000. Having to spend an unexpected £270 is not possible to some people, and not welcome to many others.
If you are looking for iPhone insurance though, take a look at our offer from only £4.41 per month at http://www.talkcover.co.uk/apple/iphone/insurance.asp
Regards.
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