SteveDC wrote:
For a while I had my $2000 ThinkPad added to my State Farm homeowner's policy for $60 a year. That was with a $500 deductible.
I quit doing it and just try to be careful. I won't try it with my iPhone. The problem with this method is 1) high deductibles, and 2) if you file a claim, the insurance company may raise your premiums or cancel your insurance.
Insurance is kind of a racket.
Disclaimer: I am a pricing actuary in personal lines insurance.
That premium sounds high given the floater limit and deductible. You would probably be able to find a better rate elsewhere.
One very important reason why deductibles exist is that it reduces the risk of moral (and morale) hazard. That is to say, if no deductible applies, then the entire risk is transferred to the insurer. The insured could conceivably "lose" the insured property for any reason, then file a claim for the full replacement cost (moral hazard). Or, the insured would be much less inclined to care for the property and would behave more negligently.
Increases in premiums based on past claim activity occur not because the insurer is trying to recoup past losses, but because past claim activity is a very strong predictor of the likelihood of the insured filing a claim in the future. Indeed, if the insurer has done its job (and I assure you if not, they would have become insolvent quite rapidly!), the rate is set in such a way that it provides adequate coverage for the expected future losses. Simply put, the premium paid before any losses occur have already taken into account the insurer's estimate of how much will ever be paid out for all the policies written. There is no need (and it is in fact illegal) for the insurer to try to "recoup" the losses retrospectively because if the insurer priced the business correctly to begin with, there is enough money to pay all expected future liabilities.
When it comes to cancellation, strictly speaking, this is not an actuarial decision but an underwriting one. If the insured fails to satisfy the underwriting guidelines then the insurance contract may be canceled. For example, suppose a homeowner buys a policy from an insurer, and the property passes inspection. Years later, the owner decides to do their own plumbing and electrical "renovation," which is clearly not up to code. The policy could be canceled because now the property is no longer within the range of what is considered an acceptable risk. It is rare that past claims experience alone would be sufficient justification for cancellation on a property insurance (health insurance is a different matter).
Now, back to the iPhone. The question of whether to have it insured depends strongly on your own estimate of how much exposure to loss you have, and how much of that exposure you are willing to bear. In other words, if you are a meticulous and mindful person who rarely if ever loses anything, then it might not be worthwhile to be paying $40 annual premiums on a policy with only $300-500 maximum value and, say, a $50 deductible, especially after considering the depreciation of the asset. Unlike homes, consumer electronics do not retain much value over time, and you can bet that Steve Jobs is going to come out with an even better iPhone in the next few years. But if you are constantly losing your stuff or have a tendency to abuse it, then it
might be worthwhile. Remember, insurers know there's a self-selection effect for personal article endorsements--the people who buy these coverages also tend to be the ones who are most likely to use it. That's why the premiums can seem very high.
I hope this rather lengthy response helps everyone to understand the nature of insurance and how it might be useful for some people to consider coverage for their electronic devices. It is not for everyone.
