You will be covered for the sale value of the item, then, so long as it's "reasonable." You won't get the shipping-paid back though, so you may be out that money. There's one (very lonely) good reason to mark your eBay listings' shipping as "free" or "calculated" with exact amount.
Anyways, when you get it back, test it. If it works, just sell it again and call the buyer a doofus. If it doesn't turn it over to the USPS and get your sale price back. Just bring proof of sale and file a claim.
In the meantime, though, you'll have to refund the buyer, so for a period of time you'll be out your device, and all the money, until you get reimbursed by the post office.
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