Dear Dave,

I just bought a new smartphone, and the company I’m with offers insurance for the device. Do you think it would be wise or foolish to do this?

Lisa

Dear Lisa,

The purpose of insurance is to transfer a risk that you can’t afford to take. When it comes to things like cars or houses, I absolutely recommend that people have insurance. Most folks couldn’t just write a check for another car if the one they drive were totaled. It’s the same with a house. If your home is destroyed, the insurance takes care of things instead of putting you in the position of having to pull tens or hundreds of thousands of dollars out of your own pocket for a new home—also something most people can’t do.

No, I don’t insure inexpensive things like smartphones. And if a smartphone is an expensive item to you, then you probably shouldn’t have that phone. I mean, there’s nothing wrong with having a cell phone if you can afford it. But if you tear up a phone or it breaks down and you can’t afford to replace it out of your own pocket, then you’ve got too much phone!

— Dave