With the ever-growing value of credit available on credit cards in the United States and over $800 million in credit card debt, knowledge of credit card insurance is crucial for millions of Americans. Not only can it save your day should the unexpected occur, but it can also grant you the peace of mind you deserve.
Travel rewards, cashback, no maintenance, bonus points – there are so many potential benefits with modern credit cards but perhaps the most beneficial is credit card insurance. This benefit can provide you with the financial flexibility needed during the most critical moments of your life.
Among many other things, a carefully chosen credit card insurance policy can:
- Pay your card debt under special circumstances
- Reimburse you for travel expenses, car rentals, and purchases
- Replace or reimburse you for damaged or stolen items
What’s the catch? Well, there’s no catch except that there are so many types of credit card insurance that it can quickly become frustrating — to the point where you are ready to give up on the idea just to free your mind from the burden of choice.
But not on our watch!
In five to ten minutes, you’ll become a credit card insurance guru. It’s really simple.
Get yourself comfortable and read on.
Credit Card Insurance: Everything You Should Know
Credit card insurance pays your credit card debt if you are unable to do so because of an unforeseen event such as a job loss, critical illness, disability, or death. Being secondary insurance, it only kicks in if the limit of your basic insurance – life insurance, job loss insurance, disability insurance, or critical illness insurance – is reached.
Credit Card Insurance Coverage
Credit card insurance pays out your outstanding balance or covers your monthly payments to your credit card issuer if you are not able to pay due to one of the qualifying events.
The main types of credit card insurance are:
- Life insurance – pays off your debt if you die, but only after your life insurance limit is reached.
- Disability insurance – covers your minimum monthly payments if you are temporarily disabled.
- Involuntary unemployment insurance – covers your minimum monthly payments if you are downsized or laid off.
- Property insurance – covers your personal property that was used as collateral for the loan.
- Travel insurance – covers lost luggage and other expenses due to qualifying travel events (delayed lights, interruptions, etc.).
Your exact coverage, however, will depend on multiple factors such as your age, social status (student, retired, etc.), and age.
How Much Does Credit Card Insurance Cost?
To calculate your credit card insurance cost:
- Sum up the daily balances on your credit card statements for a month.
- Divide this number by the number of days in the month.
- Multiple what you’ve got by your premium (may vary from 0.8% to 1.2% of your average daily balance).
Is Credit Card Insurance A Good Idea?
It depends on whether you are prone to having credit card debt. If you usually have small daily balances, have lots of savings, and are well insured, credit card insurance might be just a waste of money for you.
Credit Card Travel Insurance
If you are an inveterate traveler, then credit card travel insurance may be just what you need, as it can save your vacation should an unforeseen circumstance (weather conditions, health issues, etc.) occur during your domestic or international travel.
Credit Card Travel Insurance Subtypes
- Rental car insurance will cover theft or damage to the rental car.
- Trip cancellation insurance will come in handy if your flight is canceled or you’ve suffered an injury or illness and cannot travel.
- Trip interruption insurance will reimburse you for the part of your trip that was interrupted.
- Travel delay insurance will help you with travel delays such as a prolonged hotel or airport stay.
- Lost baggage insurance will compensate for the cost of your baggage if it was stolen during travel.
- Baggage delay insurance will cover the expenses resulting from the delay in baggage delivery.
Credit Card Rental Car Insurance
If you’ve ever rented a vehicle, then you know that most rental car companies offer their own car insurance as a part of the rental agreement. But if you already have auto insurance with your credit card, then you can decline the local auto insurer’s offer.
Rental car insurance covers theft or damage to the rental car. That’s it – all other types of coverage are typically excluded, which makes rental car insurance pretty narrow-focused and cries for the necessity of personal auto insurance.
Primary and Secondary Credit Card Rental Car Insurance
- Primary car rental coverage will cover you regardless of whether you have a private auto insurance policy. Should the accident occur, the premium on your personal car insurance policy won’t increase.
- Secondary coverage will only cover the costs that exceed the limits of the coverage provided by your auto insurance company.
Primary car rental insurance is recommended for those rare drivers who do not have personal auto insurance.
Primary Car Rental Coverage
Primary car rental coverage is offered by very few credit card companies. Here are some of them:
- Private credit cards with primary car rental coverage: United Explorer Credit Card and Chase Sapphire Preferred Credit Card.
- Business credit cards with primary car rental coverage: Ink Business Cash Credit Card and Ink Business Preferred Credit Card.
Credit Cards With Rental Car Insurance
According to Forbes, Chase Sapphire Preferred, Chase Sapphire Reserve, Ink Business Preferred, United Club Infinite Card, and United Explorer Card are the best credit cards that provide rental car insurance.
What Is Not Covered?
More often than not, rental car insurance excludes liability insurance (both bodily injury liability coverage and property damage coverage), personal effects insurance, and personal accident insurance.
What Cars Are Not Covered?
Expensive cars, trucks, motorcycles, and cars from car-sharing services are usually excluded from rental car insurance.
What Credit Card Provider Offers Rental Car Insurance?
Visa, MasterCard, and AMEX do provide rental car insurance, but the exact type of coverage depends on the bank that issued the card, as well as the type of the car being insured.
Emergency Evacuation Insurance
One of the most underrated and exclusive coverages is emergency evacuation coverage, which covers the expenses of an immediate evacuation of the policyholder or members of his/her family due to an injury or sickness. Emergency evacuation coverage is secondary to any other type of insurance that can compensate for losses.
Credit Card Payment Protection Vs. Purchase Protection
Now, a lot of confusion comes from these terms. Purchase protection and payment protection are not the same types of insurance. Read on to learn the differences.
Credit Card Payment Protection
This type of insurance puts your regular credit card payments and fees on hold if a qualifying life event occurs. It doesn’t happen automatically, though – you have to manually activate your protection plan provided you have the qualifying event to back it up.
The time of coverage under your credit card payment protection plan varies for different events and insurers. Also, most insurers will ask you for proof of your specific qualifying event before you can use your credit card payment protection plan.
- Change of residency
- Birth or adoption of a child
- Disability, job loss, retirement
- Prolonged hospital stay
Short-Term And Long-Term Payment Protection Benefits
Credit card payment protection benefits can be short-term or long-term.
- Short-term benefits cover events like the birth of a child, marriage, change of residency, or change in employment status.
- Long-term benefits can last up to two years and covers a prolonged hospital stay, a disability, or loss of a job.
What Is Excluded From Payment Protection?
Payment protection insurance plans will not cover criminal acts and activities. Other than that, the exclusions to the coverage depend on the particular policy, so it would be wise to examine the terms and conditions of your policy.
How Can Payment Protection Help?
Payment protection insurance can keep your credit card account healthy while you are going through a rough patch, alleviating the burden of regular payments.
Credit Card Purchase Protection
Credit card purchase protection insurance covers theft or damage to the item – for example, a mobile phone – that occurred within a specific time frame after the item was purchased. The insurance, however, is only valid if the item in question was bought using the same credit card that the claim is filed under.
What Is Excluded From Credit Card Purchase Protection?
The common exclusions are:
- Items bought for commercial use
- Pre-owned, used, and perishable items
- Medical devices
- Computer software
- Loss (only covered by American Express)
Other Credit Card Protection Plans
There are more types of coverage worth mentioning: price protection, extended warranty protection, and return protection.
- Price protection can save you from a sudden drop in the price of an item, which does happen often with computers, mobile phones, and other electronic devices. That said, the time frame during which the price drop should happen so that the policy would kick in is usually limited to 30 days.
- Extended warranty protection prolongs the duration of the item’s original warranty and may be reasonable for costly items such as refrigerators, TVs, computers, etc.
- Return protection allows the policy owner to return the item to a store (even a no-return policy store) within the specified time frame.
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Oleksandr Rohovnin is a Content Marketer at Phonexa.com and an expert contributor to American REIA. His passion is digital marketing, innovative technologies, tech industries, and – above all – distilling vast amounts of complex information into engrossing narratives anyone can relate to. At American REIA, Oleksandr stokes passion for auto insurance and the automotive industry in general in every story he curates.