Many cell phone providers offer insurance to protect that phone you just bought, typically around $5/month per phone. Such insurance amounts to $60/year for each phone you put it on. Is it a good or bad buy? Let's weigh the pros and cons.

Good buy

One thing insurance does well is establish a peace of mind. If you lose your phone, put it in the washer, or drop it just the right way, it's nice to know there is a way to replace the phone with the same exact model for a small deductible.

With the popularity of phone subsidies, most phones are pretty inexpensive when first bought in the store or online. However, if the phone gets lost 2 months later, it costs a lot more to replace it the second time around because there is no subsidy involved. Cell phone providers will only let consumers get new phones at subsidized prices once every 20 months, so make them count. Insurance makes it possible to spend $50 for a phone replacement instead of $300, and they allow up to two claims each year.

No matter if you are clumsy or not, mistakes can always happen in a 2-year span of time. It's always smart to protect your investment.

Insurance for your phone is a good idea, especially for the first year and a half of the contract. After this point wireless providers are more willing to look into giving you another subsidized phone in exchange for renewing your contract. If you plan on leaving that provider at the end of the current contract, definitely keep insurance on all the way to the end.

Bad Buy

When so many other options for buying replacement phones exist, why add an extra $5 to your monthly bill? If something happens to your phone and don't have insurance, it doesn't mean you have no more inexpensive ways to get another one.

Every phone manufacturer provides a one-year warranty on each phone. These warranties cover any manufacturer defects that may occur, as long as there is no physical or liquid damage. Most phone issues usually fall under this category. If it is not covered, however, it's time to look for a replacement.

Phones can still be purchased at full retail, generally $150-200 more than what you initially paid for it with contract. However sometimes mobile providers will offer early upgrades to get a new phone at a lower price.

Many carriers offer alternate phones in situations where yours is rendered useless. For instance, at the time of this writing AT&T Mobility offers a Nokia 2610 for $40 when you go in and tell the rep something happened to your phone. It's a basic phone that does not have a camera or bluetooth, but is a great temporary solution just so you can make important calls while you find a better one. Check with your current mobile provider to find similar alternates.

In a future post I will cover the large range of options available to anyone who loses their phone.

And frankly, as long as you take good care of your phone, the phone will last the whole two years. If you never need the insurance you paid for, that's $120 that could have been saved.

Overall, I think insurance is a great way to protect your investment, especially when you buy a PDA. But if you don't want to spend the extra cash each month, there are other ways to get a new phone.