Monday, July 18, 2016

Run A Family Phone Insurance Company

Teen Pointing to Broken Phone

“Dad, I jumped in the pool with my phone.”
(Uh, oh. Get the rice out!)

“Mom, my phone went through the wash!”
(Into the rice again!)

“Dad, I landed on my phone while horsing around, and the screen got smashed!”
(It’s always “got smashed”, never “I smashed”...)

“Mom, my phone flew out of my pocket while riding my bike, and a car ran over it!”
(Yeah, phones and pigs fly!)

“Dad, I left my phone at the lacrosse field!”
(That field that’s now 4 hours in the rear view mirror...)

With 5 teens, I’ve heard them all.

The chances are, one of your kids is going to have a phone mishap — at least once.

That’s what makes phones such a great way to teach kids about the principles of insurance: paying into a pool of money to cover a potential (or inevitable!) financial loss, learning what’s covered and what’s not, paying a deductible if the loss occurs, even incurring a rate increase under certain conditions.

The problem is: most commercial phone insurance plans are a rip-off. The rates are high, and many of the many common teen scenarios (see above) aren’t covered.

What to do?

Start your own family phone insurance “company” instead. Here’s how:

  1. Create a common family insurance fund. A dedicated money jar, account, or prepaid card.
  2. Define the coverage rules. Is any mishap covered? What happens to multiple offenders? A rate increase? A cheaper phone replacement? Is there a deductible — a portion of the replacement cost that the family member has to cover out of pocket?
  3. Bill each family member monthly. The payments go into the common fund.
  4. Cover phone mishaps from the common fund. The “victim” pays the deductible, and the fund picks up the rest. If the fund is dry, the victim may have to wait or settle for a cheap interim phone.
  5. Apply any profits to family fun. Running a large surplus in your fund because your kids are freakishly responsible? Use the excess cash above and beyond a reserve for a fun family outing like a dinner, a movie, or a trip to the ice cream parlor.

So, next time you hear: “Dad, I dropped my phone in the toilet!”

If the rice treatment doesn’t do the trick, you can calmly say: “File a claim.”

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