What is Credit Card Insurance? What Are Its Benefits?

February 23, 2022 Mutual Fund

A credit card is the most preferred payment method used by young adults as it gives easy access to credit. It is a pre-eminent financial tool that opens a short-term line of credit and increases the purchasing power of the cardholder. Since credit cards function on a deferred payment basis, it lets you use your credit limit for any of your needs, which can be repaid on a predetermined future date. With the ease of having multiple credit cards and access to credit anytime, more and more individuals are largely dependent on credit cards for their day-to-day purchases. However, the biggest worry of every cardholder is not being able to repay the credit card dues due to loss of income, disability, or any other genuine reason. Is there a way to protect yourself from such a situation? Yes, you can, if you have Credit Card Insurance.

Unfortunately, many cardholders are unaware of the features and benefits of Credit Card Insurance and simply deny purchasing the Credit Card Insurance Plan or purchase it without knowing the actual benefit of it. To help you get the most out of your Credit Card Insurance, this article elucidates everything you should know about a Credit Card Insurance Plan.

What Is a Credit Card Insurance Plan?

• A Credit Card Insurance Plan offers financial protection to the cardholder in case of an unforeseen event where the cardholder is unable to repay the credit card bills due to loss of income, disability, injury, or death.

• It also extends its coverage to credit card frauds for both online and offline types of transactions. It may cover frauds like PIN-based transactions, phishing, contactless transaction, tele-phishing, etc.

• Many plans offer a single-call card block service in case of a credit card theft or loss.

• Some Credit Card Insurance Plans offer emergency travel assistance (emergency cash in India, emergency advance to hotels, replacement of travel ticket, etc.), subscription to software for internet security, mobile wallet protection, etc.

• The plan may also offer a free annual credit report analysis service.

• Different banks have different names for this insurance; Card Protection Plan, Credit Shield, Card Safeguard, Balance Protection Insurance, and many more.

• The credit card issuer charges a monthly or yearly fee for the Credit Card Insurance Cover, which differs from issuer to issuer.

• It can help you repay your credit card dues on time and maintain a good credit score in case of an unforeseen event.

How Does a Credit a Credit Card Insurance Plan Work?

Let’s take an example of my friend Yogesh, who used to make most of his purchases through credit cards and ended up paying huge credit card bills every month. He also had several EMIs going on on his credit cards. Talking about insurance, Yogesh had a basic term plan of Rs 50 lakhs and third-party car insurance. One of his friends, who works in the credit card department of one of the leading banks, requested him to buy a Credit Card Insurance Plan and Yogesh bought it as the premium was affordable, and he didn’t want to disappoint his friend. During the last Diwali, Yogesh met with an accident and was hospitalised for over a month. Being a reckless credit card user, he did not have any savings to repay the huge credit card bill because whatever savings he had were spent towards his house rent and medical expenses. When he checked his credit card insurance documents, he realised that the policy covers accidents. Yogesh immediately filed a claim, which then paid the minimum amount due on the credit card bill, saving his credit score.

Depending on the terms and conditions of the credit card insurance plan, the issuer offers financial protection in case of unemployment, disability, injury, and death. You should also know that every credit card provider has different terms for the amount they can offer to pay. Some offer to pay up to the predetermined maximum limit, whereas others offer to pay only the minimum amount due.

What are the insurance coverages offered by Credit Card Insurance Plans?

As we discussed, you have to separately buy a Credit Card Insurance Plan that can help you repay your credit card dues in case of inability to repay them and provides you protection against credit card fraud. Apart from the primary benefit of credit card protection, Credit Card Insurance Plans offer several other insurance benefits that many of us are unaware of.

Here are some of the common insurance coverages offered by Credit Card Insurance Plans. However, these benefits may vary from insurer to insurer. Hence, before purchasing the plan, it is advisable to check the features, benefits, terms & conditions, etc., to avoid future disappointment.

1. Accidental Death:

Accidents can happen anytime and result in anything from a little damage to your car to an unfortunate demise. A Credit Card Insurance Plan can pay up to Rs 50,000 outstanding credit card balance in the case of the accidental demise of the cardholder. However, this amount may vary with each company. The family member that files the claim has to submit the death certificate, FIR, post-mortem report, medical examination report, etc. within 60 days from the time of mortality. Notice of death should be given to the credit card insurance provider within 30 days from the time of mortality, along with a detailed description of the accident.

2. Rental Car Insurance:

An accident of a rental car hired without any insurance can cost a pretty penny. But, if you have rented the car by paying through your insured credit card, you can claim for the repair of the damages that occurred to the car with the credit card insurance provider instead of paying from your pocket. However, this insurance will not pay any amount for third-party damage/loss or injury, theft, etc.

3. Trip Cancellation:

Bookings and trips cancellation, which we once used to face only due to unfortunate emergencies, have become normal after the COVID-19 pandemic. The losses occurred due to the cancellation of bookings and trips done through a credit card, either initiated by the travel companies, airlines, government, etc., or by you due to an illness, family emergency, accident, etc. can be claimed with the credit card insurance issuer. However, you should know that these plans do not cover cancellations due to weather changes and pre-existing diseases.

4. Lost Baggage:

Situations like loss or theft of check-in baggage due to the negligence of the airline company can be claimed with the credit card insurance company. This applies only when you do not receive your baggage within 48 hours at the arrival destination, and the payment of flight tickets is made through an insured credit card. You should know that passport coverage is not included with the lost baggage coverage, and hence, you should check whether the credit card offers passport coverage. In case your credit card insurance does not offer trip cancellation and lost baggage coverage, it is advisable to purchase a travel insurance policy while travelling, to secure your trip financially.

5. Smartphone Protection:

This could be the most beneficial insurance coverage for many individuals who frequently lose or damage their smartphones. Suppose you have purchased your smartphone with your insured credit card, and it gets lost or damaged within the specific term mentioned in the policy document. In that case, you can make a claim to get your smartphone purchase amount back. However, only a few credit cards insurance plans offer this coverage. If your insurance provider does not offer this coverage, you can purchase the mobile protection insurance plan separately at the time of buying the smartphone.

6. Purchase Protection:

Purchase protection is a common insurance cover offered by most Credit Card Insurance Plans. It provides financial protection for up to 180 days against any damage or theft of the products purchased through an insured credit card. The amount of the cover may differ from plan to plan, but it is typically offered up to Rs 50,000.

7. Roadside Assistance:

Many Credit Card Insurance Plans provide roadside assistance in case of a breakdown of a car, flat tyre, battery jumpstart, vehicle towing, etc. Under the roadside assistance cover, a few insurance providers also offer fuel delivery.

8. Documents Replacement:

Some Credit Card Insurance Plans offer free replacement of important documents like PAN Card along with mobile wallet protection to ensure all your payment methods are secure.

To Conclude:

If you excessively use your credit card for all your purchases or have an unstable job, it is advisable to consider purchasing a Credit Card Insurance Plan to ensure you maintain a good credit score. A wisely chosen credit card and Credit Card Insurance Plan can eliminate the need to purchase multiple insurance plans. Apart from the benefits and the types of coverages mentioned above, you can get many other benefits and coverages, depending on your credit card and insurance plan. Before purchasing a Credit Card Insurance Plan, make sure you analyse your requirements and choose the plan that matches your requirements.

This article first appeared on PersonalFN here