Recently I woke up from a solid night's sleep and stretched for my Samsung Galaxy Nexus, only to find a black screen blankly staring back at me. "What malarkey is this?" I fumed.

Despite repeatedly pressing down on the power button for long enough to restart Middle East peace talks, nothing happened. I tried removing and replacing the battery—nothing. I tried inserting a different battery—nothing. I tried removing and replacing the SIM card—nothing. Starting it while connected to the power cable? Nothing. Three Hail Marys? NOTHING.

It felt akin to having your personal secretary/mistress up and leave in the middle of the night, taking all your appointments with her. Not good.

So I made my way to Verizon for help. "It'll be fine," I assured myself. "If they can't fix it and it's no longer under warranty, this is exactly why I pay my $5.18 a month in phone insurance."

Fine Print, Fine Print, Fine Print

Not so much, as it turns out. Unbeknownst to me, phone insurance in America is a large, fast-growing, lucrative market. If you want to know what makes it so lucrative, do as I did and start by reading the fine print of your policy. Verizon claims to offer to "replace your device as soon as the next day, [and] avoid paying up to the full replacement cost when your device is lost, stolen, damaged, or experiences a post-warranty defect." Guaranteed replacement with a new device sounds like a pretty good deal, right? Very convenient. Read on to the slightly smaller text though, and Verizon clarifies that, "it is our goal to provide you with a replacement device that is the same color and has the same features, but this cannot be guaranteed. If the same make and model you claim is not available, a similar make and model will be substituted. Your replacement device could be new or remanufactured." Ruh-roh.

It goes on. "The most we will spend, for any one occurrence to repair or replace Covered Property due to a covered claim is either four hundred dollars ($400) if your device is found in Schedule A or one thousand five hundred dollars ($1,500) if your device is found in Schedule B, C, D, or E."

You could be forgiven for thinking $400 sounds pretty good for your $200 smartphone, until you remember the unsubsidized replacement cost of any high-end smartphone usually runs between $600 and $1,000.

White Label Insurance

As it turns out, Verizon isn't even providing the coverage; it is marketing and reselling insurance from a low-profile Nashville, Tennessee-based company called Asurion. Asurion says if a customer's phone is lost, stolen, or rendered incapacitated it will try to send a replacement within 24 hours. The big four U.S. wireless carriers offer its insurance exclusively, and another 14 wireless carriers around the world also re-label and market Asurion's "white label" insurance.

According to a November 2010 Businessweek article, Asurion claims that "more than 20 percent of the 293 million mobile customers in the U.S. pay Asurion to protect their handsets." Of course many more Americans have bought mobile phones in the last three years, and given that more of them are smartphones (and thus more likely to need insurance), we can assume millions more Americans now pay between $5 and $12 per month to Asurion, depending on their model and coverage plan.

If you do some back-of-the-envelope math, during 2010 it looks like Asurion was raking in monthly revenues of around $500 million dollars in America alone. Businessweek put its profit at anywhere between $98 million and half a billion per annum. Again, those figures are surely higher now.

Well after doing some digging, the phone insurance I thought would cover the full replacement cost of a new Galaxy Nexus was starting to sound less and less like the no-hassle experience Verizon's selling pitch suggested.

I figured I should go into a store to see if my lifeless phone was fixable. It wasn't. At least, not according to the dour Verizon rep who gave it a cursory two-minute inspection. "Looks like your charging pin is corroded," she offered. OK, well is there anything you can do for me? "Afraid not." Well what's to stop me just going to T-Mobile and getting a new phone from them? "Nothing really." After bathing in the warm glow of this above-and-beyond customer service for a moment, I decided it was time to go home and file my insurance claim.

You'll Take What You're Given, And You'll Like It

And then the real fun started. It turned out Samsung Galaxy Nexus phones had only just recently ceased production, so I would have to settle for a replacement device. While not my first choice, I figured I could handle LG's Google Nexus 4 —surely the obvious replacement as it was the successor to the Galaxy Nexus—for six months until my contract was up and I could upgrade to a new phone of my choosing. Like most Nexus owners, I specifically chose a Nexus because I don't want vendor or carrier bloatware; I like having Google's showcase model that best integrates its software with the latest hardware, and prize receiving Android updates promptly.

Asurion saw things differently: a Nexus phone was not an option.

Instead I was offered the choice of an LG Spectrum or an LG Spectrum 2 . While you could argue the specs are broadly comparable to a Galaxy Nexus, you couldn't argue the LG was the top-of-the-line Android device of its time, unlike the Galaxy Nexus. It gets better: my replacement would not even be a new phone, but a refurbished Spectrum or Spectrum 2. The pièce de résistance? I would have to front a $99 deductible for a secondhand phone that goes for $100 on eBay—and I'd already paid Verizon/Asurion $98.42 in monthly premiums.

Ladies and gentlemen, I give you the secret to Asurion's lucrative business model…

It turns out my experience is far from unusual. There are endless pages of complaints from Verizon, Sprint, AT&T, and T-Mobile customers who have all discovered the peace of mind they thought they had wasn't so peaceful. Asurion satisfaction is rated one star out of five on Consumer Affairs.

A Couple of Options

My takeaways from this experience: I probably won't buy phone insurance again, certainly not from Asurion. I look after my stuff, and, touch wood, out of six phones I haven't ever lost or significantly damaged one (er, apart from that one time at the beach I cheerfully dove into the ocean complete with the Nokia N95 I had forgotten was still in my shorts).

If you don't look after your phone so well and have a habit of dropping or losing it, then yeah, Asurion insurance may be worth it. But you can also try getting your phone insured under a "personal articles policy" from a regular insurance company, which could work out to half of what Asurion charges. You often won't even have to pay a deductible, and after filing a claim you'll simply receive a check for purchasing your replacement phone. This usually means you get to choose which phone you replace your old one with; at the very worst you'll get the same model back—unlike with Asurion. As always though, make sure you understand how the policy works before you sign, and make sure to check whether there's a deductible, which losses are covered, and how your phone will be replaced.

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