Thinking of taking out mobile phone insurance? We look at how to find the right cover - and why home insurance could offer the best deal.
As the value of the average mobile has increased, so has the popularity of mobile phone insurance.
But many mobile phone insurance providers are failing to offer their customers a fair deal.
This is according to financial services regulator the Financial Conduct Authority (FCA).
This warning comes after the FCA found that a high proportion of claims for lost or stolen mobile phones were being turned down on dubious grounds.
£2.8 million fine for mobile phone insurer
The FCA has gone as far as to fine one firm – Policy Administration Services, which operates policies for Phones 4U customers – £2.8 million for the way it handled complaints.
Mobile phone insurance may not be quite the rip-off that payment protection insurance (PPI) turned out to be.
But following the FCA's research it would be understandable if many smartphone owners decided simply to go without cover, especially given the potential cost.
Some policies can set customers back as much as £15 a month, or £180 a year. So how can you find the right cover?
Do I need mobile phone insurance?
There are a number of factors you should consider before signing up for cover.
Gareth Lane, head of home insurance at Confused.com, says you should ask yourself whether your phone is worth insuring in the first place.
"Mobile phones are often lost and damaged accidentally.
"With the average handset being worth in excess of £250 and contracts lasting between 12 and 36 months, I'd always advise people to make sure they're adequately covered," he says.
"Conversely, is the cost of the mobile phone insurance policy more expensive than your handset?
"Some mobile insurance policies can cost £100 or more a year so compare that to the cost of replacing the phone."
How much protection am I getting?
The next step is to check exactly how much protection a policy will provide.
"Does the policy cover you for loss and accidental damage?" asks Lane.
"This has been highlighted in the FCA review and I'd advise anyone taking out mobile phone insurance to read their policy booklet carefully to ensure there aren't any hidden surprises.
"And always review the policy excess," Lane adds. This is the amount you have to contribute to a claim before the insurer pays out.
Lane says the excess "can range from £20 to £100 depending on the insurance provider and the circumstances of your claim".
You don't want to end up paying a £100 excess on a claim for a phone worth little more than that.
Is your phone covered by your home insurance?
It may be that your phone is covered as part of your home contents policy if you have insurance for personal possessions away from home.
This is typically available as an optional extra but there are two big caveats, warns Lane.
"First of all, check the excess on your home insurance policy because it may be higher than the value of the phone.
"And remember that if you choose to claim on your home insurance, your provider may well increase the cost of cover come renewal time."
Even if this isn't the case, it pays to shop around at renewal time to make sure you're still getting the best deal on your insurance.
What are the problems with mobile phone insurance?
The FCA identified a number of issues around how mobile cover was being sold, and how claims were dealt with.
Many policies contained vague wording, the FCA said, which meant that customers often thought they were covered when they weren't.
For example, some insurers said that phones were not covered against loss in a "public place", but then used a very broad definition of this term to avoid paying compensation.
This meant that claims were rejected for the loss of a phone in a taxi and even in a hotel room.
A hotel room was deemed by one mobile phone insurer to have become "public" the moment the policyholder checked out.
Mobile phone insurers accused of 'dragging heels' over claims
Time limits on how quickly claims had to be made were also too restrictive, the FCA found, and it said several insurers were dragging their heels when dealing with cases.
Anyone who thinks their claim wasn't dealt with fairly should resubmit their case, and take it to the Financial Ombudsman Service if necessary.
Read our guide: Who to complain to when things go wrong with a financial service or product.
Common reasons mobile phone insurers reject claims
The government-backed Money Advice Service highlights some common reasons why insurers turn down claims.
- If customers lose their phone through carelessness – for example by driving off with the handset on the roof of their car – a claim is likely to be rejected.
- Claims for theft may have to involve force – so a mugging would be covered, but not a pickpocket in a busy bar.
- Water damage: if your mobile phone stops working because you dropped it in the bath, don't expect a payout. Most new phones have indicators which show when water has got into the inner workings.
'Claims processes should be fair'
Clive Adamson of the FCA said: "It is important that insurance policies provide the level of protection that they promise, and claims processes are fair.
"What this review shows is that sometimes there is a gap between what the customer thinks they are getting and what they are really getting."
The good news is that, according to the FCA, the firms it investigated are making changes that should result in a better deal for policyholders in future.
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