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You may not even realize you have heard of credit card insurance because it comes in many different names and versions. Essentially, all insurance carries a type of protection for you as the consumer from life to purchase to disability and unemployment insurance. You may not even be aware that a credit card you use has protection or what is available to you.

An important factor to remember is that, for the most part, any kind of credit card insurance costs extra money and you may be paying for it already without knowing it. Although any kind of protection costs will show up on your statements, they may not be a monthly charge and you may not realize what they are for specifically. 

The benefits that come from having insurance aren’t nearly as high profile as cash back benefits or miles. This can lead to a misunderstanding of what the exact benefits are or that the consumer even has those benefits.

Credit Card Insurance: Purchase Protection

credit card insurance

One of the most common and important credit card insurance benefits is purchase protection when something you purchase is damaged or stolen. Generally, the damage or theft would occur during shipping or packaging. With the protection, the insurer pays the credit card.

The exact nature, or even existence of, purchase protection differs by issuing company and even based on financial institution within that issuer. Consumers need to be aware of whether they have credit card insurance on current cards they own or cards they are applying for.

In most cases, the purchase protection covers 90 days from the time of the purchase.  Another thing to consider is that each creditor has a maximum payout for each purchase and over a one-year period. Among the major credit card companies (American Express, Visa, and Mastercard), the maximum payout per purchase is a maximum $1,000 and $50,000 per year. 

Perhaps the most important factor consumers need to know is how much, or little, time you have to file a claim on a lost, stolen, or damaged purchase. The range can be as little as 30 days to 180 days from the time of purchase. There may be even a time limit with a shorter time to initially alert the credit card company.

Other Types of Credit Card Insurance

Another type of credit card insurance is credit life insurance, which pays off the credit card balance owed when the consumer passes away. Something to keep in mind is that if you have a life insurance policy and/or money in a bank account that would cover the debts, you may want to think twice before purchasing life insurance through any credit card.

Involuntary unemployment insurance is another insurance benefit offered by many credit card companies. In this case, the insurer would pay the minimum payment for a predetermined amount of time if the consumer is unexpectedly laid off or losing their job. It is important to understand that this insurance only covers purchases made prior to the termination.

Credit disability insurance is another example of credit card insurance where the insurer pays the minimum payment for a predetermined time when the consumer is medically disabled. As with unemployment insurance, purchases made after the disability are usually excluded.

Factors to Consider Before Getting One

There are multiple factors to consider about any of the four major areas of credit card insurance: purchase protection, life insurance, unemployment insurance, and disability insurance. Most of them come with costs and the consumer needs to make an educated decision about having them.

Property insurance may have specific circumstances under which your item is damaged in order for it to be covered. Between possible exclusions and limits on how much you can be reimbursed, you need to determine how necessary this may be for you.

It is necessary to particularly be wary of exclusions for the other three types of credit card insurance. Disability insurance may be limited by pre-existing conditions, life insurance may not be available to older adults, and unemployment insurance may need to be set up a number of months before you are laid off.

Remember that with disability and unemployment insurance, the insurer is only paying the minimum payment for a specific period of time. You will be responsible for the payments once that time period is over and because only minimum payments are being made, the balance will continue to grow at a rate based on the interest rate.

You May Have the Insurance You Need

If you are employed, you may already have life insurance and disability insurance through your company. Most companies offer you the opportunity to purchase various life insurance amounts that are automatically taken out of your paycheck over time. 

Some companies offer basic life insurance and short-term disability protection as part of your employment. This may make it unnecessary to purchase additional credit card insurance for these situations. Whether you are employed or not, you also have the option of procuring life insurance and/or disability insurance that gives you far more flexibility than something as specific as credit card insurance.

The best policy for any emergency needs is always to have money put away in a bank or credit union that you can use when something unexpected comes up. Of course this is not possible in every person’s financial situation, but for those who can do so, a portion of money from each paycheck can be put aside to build up an emergency savings account.

Other Credit Card Insurance Benefits

Some credit cards offer insurance benefits that extend beyond the most common types of insurance and may make credit card insurance more enticing for some consumers. One example is price protection coverage, where you can be reimbursed for the difference between what you paid for it and a decreased cost it became shortly after you purchased it. Some credit cards that used to have this perk no longer do so be sure to check with your credit card company.

Although consumers can purchase travel insurance separately, some credit cards can be used to recoup non-refundable fees and expenses if your trip is canceled or cut short. Usually the cancelation is a result of sickness or injury to yourself or someone else. Some cards extend the circumstances to severe weather.

Related to travel woes is luggage insurance. The coverage is for lost luggage, but in some cases, even for delayed luggage. In the later case, you may be eligible for things you need to purchase in the interim waiting for your belongings to arrive. There are maximum amounts that accompany this form of credit card insurance.

In rare instances that could potentially become more common in the future, credit card insurance can extend to your cell phone. In this instance, paying for your phone and its monthly bill gives you a maximum limit you can be reimbursed if your phone is stolen or damaged.

What Questions to Ask About Credit Card Insurance

Whether you are looking into getting new credit card insurance or are investigating what coverage you may already have with your current credit card, there are a series of questions you should be asking.

For example, you may not want to purchase all four major areas of insurance. Can you pick and choose? What are the costs for all four versus the costs for choosing fewer than four? Do not assume that you are not already paying for insurance as it may have been part of an introductory offer and it wasn’t obvious that you needed to cancel it after that period. It is important to know how to cancel any insurance you do have.

It is imperative to ask exactly what the insurance covers in the different areas and what is not covered. Also, what is the time frame you have to file a claim for each specific type of insurance. It is important to ask about what the limits are, what the maximum payouts are for any claim.

In the case of joint card owners, whether it be two people in a relationship or parent-child, you may want to clarify who is covered by the insurance. Do all the benefits of insurance cover anyone who is a primary owner of the credit card? Are the maximum limits set for the card or the card owners?

Pros and Cons of Credit Card Insurance

The final decision about credit card insurance is always in your hands as it is an optional addition to any credit card rather than something mandatory. Some people may find it hard to get other types of insurance, which leads to one of the best parts of obtaining insurance through your credit card: it is easy to get! In fact, you can even purchase the insurance over the phone.

One of the biggest cons to credit card insurance is that you are only covered by that one specific card. Many card owners in the U.S. have multiple credit cards. Even if you have another credit card from the same company you have the credit card insurance with, you are still only covered for specific card you purchased the insurance through.

In the final analysis, you need to make the decision that makes the most sense for your financial situation. You are essentially weighing risk vs. reward. Is the cost of credit card insurance more important than the risk of not having it if you don’t have other types of insurance? Ideally, every consumer should have some plan in case of emergency and for some, their options may be limited beyond insurance through their credit card.

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