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Owning a cell phone can get expensive, especially if you have to replace or fix a stolen or damaged one. Luckily, you may have cell phone protection from your credit card.

By taking advantage of credit cards with cell phone protection, you could save on a separate cell phone insurance plan. But before signing up for a new credit card or foregoing insurance, it’s best to understand exactly what is and isn’t covered under credit card phone insurance.

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What Is Credit Card Cell Phone Protection?

Credit card cell phone protection is a type of insurance protection, where your credit card issuer pays for you to replace a stolen cell phone or make repairs to a damaged one. In most cases, you’ll need to pay for your cell phone bill with that card in order to get the protection.

Depending on the terms and conditions listed on your credit card, you’ll be protected from certain types of damage, and up to a certain coverage amount.

How Does Credit Card Cell Phone Protection Work?

When you pay for your cell phone bill with a credit card that offers cell phone protection, you can file a claim if you experienced a type of covered loss.

Keep in mind that the coverage provided by your cell phone may not be primary. This means you may need to exhaust your other options, such as by filing a claim with your home, car, or separate cell phone insurance first. It’s best to check the terms of your credit card phone insurance to see when you’re able to file a claim.

If you are able to file a claim with the credit card issuer, you may need to pay a deductible per claim (in many cases it’s around $25 or $50) before insurance kicks in. Plus, you may have limitations as to how many claims you can make per year, as well as the amount you’ll be covered for. The specifics will ultimately depend on how your credit card works.

Who Does Credit Card Cell Phone Protection Cover?

In most cases, your credit card issuer will provide protection for cell phones that you pay your monthly service bills for. As in, any phone numbers listed on the monthly bill that you pay for using an eligible credit card will most likely be covered. That means if you have more than one phone on your plan, the credit card protection will extend to all of them.

However, some credit card companies may limit the number of cell phones that are covered. It bears repeating that it’s important to check the coverage limitations listed in the terms and conditions for your credit card.

What Does Credit Card Cell Phone Protection Cover?

Typically, credit card cell phone protection will pay to replace an eligible phone that’s stolen or to make repairs to an eligible phone that’s damaged. What’s typically covered includes damage to your phone that makes it non-functional or not operate optimally. Different credit card companies will have various definitions for covered damages, which can range from cracked screens to hardware failures.

What Isn’t Covered by Credit Card Cell Phone Protection?

Remember, cell phone protection only provides coverage for the actual phone. Here’s what usually is not covered by your eligible credit card:

•   Accessories like a phone case or screen protector

•   Cell phones for purchased for resale, or commercial or professional use

•   Cell phones that are lost or that disappeared under mysterious circumstances (i.e. there wasn’t evidence of any wrongdoing)

•   Phones stolen from a common carrier (like the U.S. Postal Service or another delivery service) or your baggage

•   Phones from pay-as-you-go plans

•   Cosmetic damage

•   Damage or theft from fraud, illegal activities, normal wear and tear, certain natural disasters, and intentional acts

•   Taxes or fees such as delivery charges

•   Losses that are covered under your cell phone manufacturer warranty

•   Replacement of a phone that wasn’t purchased from a cell phone retail store with the ability to activate phone with your cell phone service provider

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Factors to Consider Before Getting a Cell Phone Insurance Policy With Your Issuer

Trying to decide whether to take advantage of cell phone insurance through a credit card? Here are some considerations to make before deciding.

The Deductible

Though the deductible may not cost you a lot, it’s important to check exactly how much you’ll have to pay out of pocket before your insurance will cover the rest. It’s also smart to check how much it will cost for the repair beforehand, especially if you believe the cost could be close to the amount of your deductible.

The Number of Claims You Can File

Some credit card issuers limit the amount of claims you can make. For instance, you may only be able to make two separate claims a year up to the coverage limit.

You’ll also want to check to see whether the allowable coverage amount would be enough to replace your current phone if it’s stolen. If not, you may want to consider other alternatives.

Your Card’s Annual Fee

If you’re signing up for a credit card solely for the cell phone protection feature, make sure the annual fee is worth it, assuming there is one. In some cases, it may be better money-wise to stick with your homeowners or renters insurance, or to purchase a separate cell phone insurance plan.

At the end of the day, you don’t want the costs to outweigh the benefits of a credit card.

How to Know If Your Credit Card Has Cell Phone Protection

The best way to find out if your credit card offers cell phone protection is to check your card agreement. It should detail what features are offered — and you could even learn about additional perks, such as credit card rental insurance or credit card travel insurance.

Granted, the fine print can sometimes feel overwhelming or difficult to wade through. Another option is to call your credit card company and ask whether your card has cell phone protection and if so, how you can qualify.

Filing a Cell Phone Protection Claim

If you need to file a claim, most credit card issuers require that you file a report within a certain amount of time, such as within 90 days of your loss. Contact your credit card issuer, and it will provide the next steps you’ll need to take.

Your issuer may direct you to forms you’ll need to fill out with information like details around the loss and any proof you can provide. Your credit card company will then keep you informed with any updates related to your claim.

Alternatives to Credit Card Cell Phone Protection

If you aren’t using a credit card to pay your cell phone bill or just aren’t sure whether credit card cell phone protection is the right choice for you, there are other options. You might consider these alternatives:

•   Homeowners or renters insurance: Many homeowners or renters insurance policies offer coverage for personal belongings. However, it typically covers theft and not damage or loss. Plus, you may face a higher deductible compared to what a credit card company may charge.

•   Purchase a separate cell phone protection policy: Your phone’s manufacturer or service provider may offer policies. Before signing on the dotted line, read the fine print carefully to see what the coverage limit and deductible are, as well as what losses are included.

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The Takeaway

Getting cell phone coverage from a credit card can be a great way to protect an item you use often. Plus, it could save you from purchasing a separate policy. Before moving forward with credit card cell phone protection, check to see whether the credit card is worth signing up for.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Can a cell phone be used to steal credit card details?

For the most part, the digital wallets used to store credit card information on your cell phone are safe. Still, you’ll want to do your research to ensure you’re choosing an app that has in place adequate protections. Also follow basic safety practices, like locking your phone, avoiding using digital payment devices over unsecured WiFi networks, and regularly reviewing your account for any fraudulent activity.

Is it safe to put your credit card details on your phone?

Generally yes, it’s safe to put your credit card details on your phone if you’re using e-wallet apps, such as Apple Pay and Samsung Pay. However, any type of credit card transaction can be vulnerable to fraud.

Is credit card cell phone protection worth it?

Credit card cell phone protection can be worth it if you want to guard against loss or theft for your phone that may cost you a lot of money to replace. You’ll want to weigh the card’s annual fee against the protection offered in order to determine if it’s truly worthwhile.

Photo credit: iStock/nunawwoofy

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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When an insurance company determines that a vehicle is totaled — that is, so badly damaged that repairing it will cost more than it’s worth — the owner may be reimbursed for its actual cash value (ACV) instead of repairs. How much insurance will pay for a totaled car varies. The exact amount depends on the insurance company, where the driver lives, how much coverage they have, and other factors.

Knowing how insurance decisions are made, and how to manage your claim, can help you prepare for this scenario after an accident.

What Makes a Car a Total Loss?

An insurance company may declare a car a “total loss” if the cost of fixing it is more than the market value, or if it wouldn’t be safe to drive the car even if the repairs were made. The insurer also may make its decision based on how your particular state defines a total loss. (You can learn more about the terms discussed here and others in our guide to car insurance terms.)

Some states use a total loss threshold (TLT) to determine if a car is totaled. In these states, the damage must exceed a certain percentage of the car’s value. Missouri, for example, has an 80% TLT — which means if you were in an accident and your car worth $10,000 required more than $8,000 in repairs, your car could be declared a total loss. The repairs wouldn’t exceed the actual cash value of the vehicle, but they would exceed the state’s TLT. (Iowa has the lowest TLT in the U.S. at 50%. Colorado and Texas have the highest, with a TLT of 100%.)

Many states use a total loss formula (TLF) to declare a vehicle totaled. With this method, if the cost of repairs plus the salvage value of the car exceeds its actual cash value, the car is totaled.

If the insurance company thinks the damage could end up being more extensive than the adjuster’s initial estimate, it may use a lower threshold for declaring a total loss than what the state requires.

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What Types of Insurance Coverage Pay for a Totaled Car?

Whether your insurance will pay for a total loss (and how much it will pay) depends on your policy. This is when smart personal insurance planning pays off. There are a few types of coverage that might kick in if your car is totaled.

Collision Coverage

This coverage pays for damage to your own vehicle or property. That can include damage caused by crashing into another vehicle or running off the road and into a tree or fence. Even if you’re responsible for the accident, collision coverage will pay for the repairs, minus the deductible amount you’ve chosen. (Learn more about the types of deductibles in insurance.)

If you are found to be at-fault, however, you can expect your car insurance premiums to go up after an accident.

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Comprehensive Coverage

Comprehensive insurance covers losses caused by something other than a collision, such as a weather event, hitting an animal, theft, or vandalism.

Property Damage Liability Coverage

This coverage pays for damage to your vehicle (or other property) if you’re in an accident and the other driver is found to be at fault.

Uninsured/Underinsured Motorist Coverage

If you’re in an accident and the other driver is at fault but isn’t insured or doesn’t have sufficient insurance, this coverage can cover your repairs.

New Car Replacement Coverage

With new car replacement coverage, if your car is totaled, your insurer will pay to replace your damaged car with a brand-new car of the same make and model (minus your deductible). Drivers looking for lower car insurance premiums tend to go with this extra, but it can save you big money in the event of an accident.

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GAP Coverage

If you owe more on your car loan or lease than what your insurance says your totaled car is worth, you could end up having to pay the difference. GAP coverage, short for Guaranteed Auto Protection, can help “bridge the gap” between your insurance settlement and what you still owe.

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How Does an Insurance Company Decide How Much to Pay Out?

After an accident, you can expect your insurance company to assign an adjuster to handle your case. The adjuster will check out your damaged car and, as part of the assessment, determine the cost of repairs and if the car is worth repairing.

If it’s totaled, the adjuster will assign the car a value based on its pre-crash condition and what similar models are selling for. The “actual cash value” you receive will factor in the car’s age, wear and tear (inside and out), the car’s mileage, equipment you may have added, etc.

The payment you receive will help you buy a new car, but it probably won’t be enough for a new model of the same car (unless you have new car replacement coverage). And it may not be enough to pay off your loan or lease (unless you have GAP coverage).

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What Steps Should a Car Owner Take If a Car Is Totaled?

There are a few things that need to happen to get you back on the road ASAP after a serious accident:

Contact Your Insurance Company

No matter who’s at fault for your car’s damage, you should notify your insurance company immediately. Most insurance companies are available 24/7 to take your claim by phone, online, or app.

Assess the Damage

The insurance company will send an adjuster to inspect your car and estimate the cost of repairs.

Calculate Your Car’s Fair Market Value

The insurance adjuster will do some research to determine your car’s fair market value — and you can do some homework, too. You can use the Kelley Blue Book to get an idea of what your car was worth before the accident (using the make, model, mileage, and when you bought your car). Or you can check online to see what similar cars in your area are selling for.

Contact Your Lender

If you’re still paying off your car loan, or you’re in a lease, you should inform the financing company that the car was damaged. It’s also important to keep making payments until you settle your insurance claim, so you don’t hurt your credit.

Negotiate Your Insurance Company’s Payout

If you can convince the insurance company that your car was more valuable than the amount they’re offering, they may adjust the payment you receive. The insurer may ask you to provide paperwork that shows the car was worth more, so it’s a good idea to keep your receipts and maintenance documentation. Or you may decide to hire a private appraiser to see if you can get a higher estimate. (You’ll have to pay for this service yourself.)

Get Your Payment — And a New Car

If you own the car outright, the insurance company will send you the money — often within a few days. You can use it to shop for a replacement.

When you have a car loan, your insurer will send the appropriate payoff amount to your lender and the rest (if applicable) to you. If you have a lease, the insurer will send the payment to the leasing company.

What Happens to a Totaled Vehicle After Filing a Claim?

Generally, after an insurance company decides a car is a total loss, it will take possession of the vehicle and, when the claim is settled, sell it as salvage. But the car’s final destination may depend on state regulations and whether the owner wants the car back.

Can You Keep a Totaled Vehicle?

You can talk to your insurer about the possibility of buying back the totaled vehicle if you want to keep it for sentimental reasons, or because you think you can fix it or use it for parts. This is allowed in some states, but you may have to work with the local DMV to complete the purchase.

If you hope to get the car back on the road, you can expect to go through several more steps. It will have to be fixed and pass an inspection, and you’ll have to get a new title. You’ll also have to register the car and insure it.

If that turns out to be a few too many hoops to jump through, you may end up selling it to a junkyard yourself. Or you can sell the parts to interested individuals. You also may be able to donate the car to a local charity.

Before you negotiate with your insurer to get your car back, you might want to check on whether it’s legal in your state and — if you plan to drive it again — what kind of insurance you can get on a car that’s been declared a total loss.

Can I Decide If My Car Is Totaled?

No. The insurance company must decide if the damaged vehicle is a total loss based on its value and the cost of repairs.

Understanding Your Coverage

Being in a serious collision can be stressful, whether you’re responsible or someone else is determined to be at fault. You may be hurt or hospitalized. Understanding how car insurance works, and what it will and won’t cover, can help you prepare. And it might take your stress down a notch in the aftermath of an accident.

An accident may prompt you to reassess how much auto insurance you really need. After all, more coverage means higher premiums, and vice versa.

An online insurance marketplace can help you decide what types of coverage you want, and whether getting GAP coverage or a policy with rental car reimbursement coverage is a good strategy. Your lender or leasing company, as well as your state, also may have specific requirements for how much insurance you must carry.

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The Takeaway

If your car is so badly damaged in an accident that the cost to repair it will be more than it’s worth, your insurer may decide to declare the vehicle a total loss. This means the insurer will give you the car’s actual cash value (based on its condition just before the accident) instead of paying to have it fixed.

Of course, you’ll only receive payment if you have the right kind of insurance coverage. Even then, the settlement likely won’t be enough for you to replace your wrecked car with a new car of the same make and model. Also, if you owe more on your car loan or lease than your insurance says your totaled vehicle is worth, you can end up having to pay the difference.

If you want to be proactive about your insurance coverage, SoFi can help you compare your current auto insurance policy to what other top insurers are offering. SoFi will walk you through the process of getting the right coverage for your needs.

FAQ

How do insurance adjusters determine the value of a car?

An insurance adjuster will assign the car a value based on its pre-crash condition and what similar models are selling for. The “actual cash value” will factor in the car’s age, wear and tear, mileage, and other equipment you may have added, including the condition of the tires.

What happens if insurance doesn’t pay enough?

You can try to negotiate with the insurer to get a higher payout, but you should expect to back up your request with documentation. Or you may decide to hire a private appraiser to give you a second opinion of the car’s value.

What happens when your car is totaled and you still owe money?

If you’re still making payments on your car when it’s totaled, the insurance company will send the appropriate payoff amount to your lender and the rest of your settlement to you. If the insurance payment isn’t enough to cover what you owe, you may have to pay the difference.

Photo credit: iStock/Jorge Villalba

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SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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A short put spread, sometimes called a bull put spread or short put vertical spread, is an options trading strategy that investors may use when they expect a slight rise in an underlying asset. This strategy allows an investor to potentially profit from an increase in the underlying asset’s price while also limiting losses. An investor may utilize this strategy to protect against any downside risk; the investor will know their total potential loss before making the trade.

When trading options, you have various strategies, like short put spreads, from which you can choose. The short put spread strategy can be a valuable trade for investors with a neutral-to-bullish outlook on an asset. Which options trading strategy is right for you will depend on several factors, like your risk tolerance, cash reserves, and perspective on the underlying asset.

What Is a Short Put Spread?

A short put spread is an options trading strategy that involves buying one put option contract and selling another put option on the same underlying asset with the same expiration date but at different strike prices. This strategy is a neutral-to-bullish trading play, meaning that the investor believes the underlying asset’s price will stay flat or increase during the life of the trade.

A short put spread is a credit spread in which the investor receives a credit when they open a position. The trader buys a put option with a lower strike price and sells a put option with a higher strike price. The difference between the price of the two put options is the net credit the trader receives, which is the maximum potential profit in the trade.

The maximum loss in a short put spread is the difference between the strike prices of the two puts minus the net credit received. This gives the trading strategy a defined downside risk. A short put spread does not have upside risk, meaning the trade won’t lose money if the price of the underlying asset increases.

A short put spread is also known as a short put vertical spread because of how the strike prices are positioned — one lower and the other higher — even though they have the same expiration date.

How Short Put Spreads Work

With a short put spread, the investor uses put options, which give the investor the right — but not always the obligation — to sell a security at a given price during a set period of time.

An investor using a short put spread strategy will first sell a put option at a given strike price and expiration date, receiving a premium for the sale. This option is known as the short leg of the trade.

Simultaneously, the trader buys a put option at a lower strike price, paying a premium. This option is called the long leg. The premium for the long leg put option will always be less than the short leg since the lower strike put is further out of the money. Because of the difference in premiums, the trader receives a net credit for setting up the trade.

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Short Put Spread Example

Say stock ABC is trading around $72. You feel neutral to bullish toward the stock, so you open a short put spread by selling a put option with a $72 strike price and buying a put with a $70 strike. Both put options have the same expiration date. You sell the put with a $72 strike price for a $1.75 premium and buy the put with a $70 strike for a $0.86 premium.

You collect the difference between the two premiums, which is $0.89 ($1.75 – $0.86). Since each option contract is usually for 100 shares of stock, you’d collect an $89 credit when opening the trade.

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Maximum Profit

The credit you collect up front is the maximum profit in a short put spread. In a short put spread, you achieve your maximum profit at any price above the strike price of the option you sold. Both put options expire worthless in this scenario.

In our example, as long as stock ABC closes at or above $72 at expiration, both puts will expire worthless and you will keep the $89 credit you received when you opened the position.

Maximum Loss

The maximum loss in a short put spread is the difference between the strike prices of the two put options minus the credit you receive initially and any commissions and fees incurred. You will realize the maximum loss in a short put spread if the underlying asset’s price expires below the strike price of the put option you bought.

In our example, you will experience the maximum loss if stock ABC trades below $70, the strike price of the put option you bought, at expiration. The maximum loss will be $111 in this scenario, not including commissions and fees.

$72 – $70 – ($1.75 – $0.86) = $1.11 x 100 shares = $111

Breakeven

The breakeven on a short put spread trade is the price the underlying asset must close at for the investor to come away even; they neither make nor lose money on the trade, not including commissions and investment fees.

To calculate the breakeven on a short put spread trade, you subtract the net credit you receive upfront from the strike price of the short put contract you sold, which is the option with the higher strike price.

In our example, you subtract the $0.89 credit from $72 to get a breakeven of $71.11. If stock ABC closes at $71.11 at expiration, you will lose $89 from the short leg of the trade with a $72 strike price, which will be balanced out by the $89 cash credit you received when you opened the position.

Set-Up

To set up a short put spread, you first need to find a security that you are neutral to bullish on. Once you have found a reasonable candidate, you’ll want to set it up by entering your put transactions.

You first sell to open a put option contract with a strike price near where the asset is currently trading. You then buy to open a put option with a strike price that’s out-of-the-money; the strike price of this contract will be below the strike price of the put you are selling. Both of these contracts will have the same expiration date.

Maintenance

The short put spread does not require much ongoing maintenance since your risk is defined to both upside and downside.

However, you may want to pay attention to the possibility of early assignment, especially with the short leg position of your trade — the put with the higher strike price. You might want to close your position before expiration so you don’t have to pay any potential assignment fees or trigger a margin call.

Exit Strategy

If the stock’s price is above the higher strike price at expiration, there is nothing you have to do; the puts will expire worthless, and you will walk away with the maximum profit of the credit you received.

If the stock’s price is below the lower strike price of the long leg of the trade at expiration, the two contracts will cancel each other, and you will walk away with a maximum loss.

Before expiration, however, you can exit the trade to avoid having to buy shares that you may be obligated to purchase because you sold a put option. To exit the trade, you can buy the short put contract to close and sell the long put contract to close.

Impacts of Time, Volatility, and Price Change

Changes in the price and volatility of the underlying stock and the passage of time can affect a short put spread strategy in various ways.

Time

Time decay will generally work in favor of the short put spread. As both of the legs of the short put spread get closer to the expiration, any time value that the option contracts have will erode.

Volatility

The short put spread is more or less volatility neutral. Because you are both long and short one put option contract each, volatility in the underlying stock similarly affects each leg of the contract.

Price

A short put spread is a bullish option strategy. You have no risk to the upside and will achieve your maximum profit if the underlying stock closes above the strike price of the higher put option. You are sensitive to price decreases of the underlying stock and will suffer the maximum loss if the stock closes below the strike price of the lower put option.

Pros and Cons of Short Put Spreads

Here are some of the advantages and disadvantages of using short put spreads:

Short Put Calendar Spreads

A short put calendar spread is another type of spread that uses two different put options. With a short put calendar spread, the two options have the same strike price but different expiration dates. You sell a put with a further out expiration and buy a put with a closer expiration date.

Alternatives to Short Put Spreads

Short put vertical spreads are just one of the several options spread strategies investors can use to bolster a portfolio.

Bull Put Spreads

A bull put spread is another name for the short put spread. The short put spread is considered a bullish investment since you’ll get your maximum profit if the stock’s price increases.

Bear Put Spread

As the name suggests, a bear put spread is the opposite of a bull put spread; investors will implement the trade when they have a bearish outlook on a particular underlying asset. With a bear put spread, you buy a put option near the money and then sell a put option on the same underlying asset at a lower strike price.

Call Spreads

Investors can also use call spreads to achieve the same profit profile as either a bull put spread or a bear put spread. With a bull call spread, you buy a call at one strike price (usually near or at the money) and simultaneously sell a call option on the same underlying with the same expiration date further out of the money.

The Takeaway

A short put spread is an options strategy that allows you to collect a credit by selling an at-the-money put option and buying an out-of-the-money put with the same expiration on the same underlying security. A short put spread is a bullish strategy where you achieve your maximum profit if the stock closes at or above the strike price of the put option you sold. While this trading strategy has a limited downside risk, it provides a lower profit potential than buying the underlying security outright.

Short put spreads and other options trading strategies can be complicated for many investors. An options trading platform like SoFi’s can make it easier, thanks to its user-friendly design and offering of educational resources about options. Investors have the ability to trade options from the mobile app or web platform.

FAQ

Is a short put spread bullish or bearish?

A short put spread is a neutral to bullish options strategy, meaning you believe the price of an underlying asset will increase during the life of the trade. You will make your maximum profit if the stock closes at or above the strike price of the higher-priced option at expiration.

How would you close a short put spread?

To close a short put spread, you enter a trade order opposite to the one you entered to open your position. This would mean buying to close the put you initially sold and selling to close the put you bought to open.

What does shorting a put mean?

Shorting a put means selling a put contract. When you sell a put option contract, you collect a premium from the put option buyer. You’ll get your maximum profit if the underlying stock closes at or above the put’s strike price, meaning it will expire worthless, allowing you to keep the initial premium you received when you opened the position.

Photo credit: iStock/akinbostanci

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