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Regulation and Compliance

Credit Card Insurance Benefits

Aaron Lunt | August 17, 2018

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Handful of credit cards

Not all but several credit cards provide a variety of benefits, which include an array of insurance offerings. Although card benefits vary by bank and credit processing company, there are several insurance benefits that are becoming more common, as this article will explore.

To attract new—and retain existing—credit cardholders, both banks and credit processing companies embed a variety of benefits to cardholders. Some credit cards provide cash-back guarantees on qualified purchases, but several also include benefits that attach from the use of a covered credit card. Said another way, if you use your covered credit card to make certain qualifying purchases, there's an attachment of select insurance benefits that may be available to you.

These insurance benefits are typically embedded in the credit card at no additional cost to the cardholder. The issuing bank, or perhaps the credit processing company, may elect to pay an insurance company for certain benefits that automatically extend to a cardholder on a noncontributory basis when they make a qualified purchase. The market for credit cards is highly competitive, and a financial institution or credit processing company has to look for a way to differentiate their product. Much like cash-back guarantees on purchases, airline miles, or reward points, insurance benefits are a way for companies to make their offering more attractive in the market, increase cardholder volume, and drive use of the credit card.

Available Insurance Benefits

Although there are several variations, this article will highlight a few of the more typical benefits. As previously stated, these benefits attach by use of the covered credit card and certain conditions or limitations may apply, so it's important to evaluate the applicable terms and conditions to gain a full understanding of covered benefits.

Trip Cancellation Insurance

This insurance benefit reimburses a cardholder in the event that their trip is canceled for a covered reason. Covered reasons could be due to a variety of fortuituous events, including weather, political insurrection, self or a close family member's illness or death, and other perils. By using a covered credit card to purchase a trip, there is an insurance benefit that attaches, and benefits may be available to reimburse you for nonrefundable expenses.

Trip Interruption Insurance

This insurance benefit reimburses a cardholder for costs incurred (new airline ticket booking, change fees, hotel stay, reasonable incidentals, etc.) if the cardholder experiences some form of interruption after they start a covered trip. For example, let's say a cardholder booked a trip from Chicago to Jamaica and, while in Jamaica, the cardholder's family member becomes ill or dies. In this situation, there might be a covered claim. The cardholder could be reimbursed for any losses incurred due to this interruption, subject to certain terms and limitations.

Lost Baggage Insurance

This insurance benefit would extend coverage to the cardholder in the event that their luggage is lost or damaged and never recovered. This could be due to a myriad of reasons, including theft, airline negligence, or other reasons. The benefit is a reimbursement that covers the loss to the luggage and its contents.

Double the Warranty Insurance

Despite what it appears, this is actually treated as an insurance benefit. For example, New York Insurance Statute Section 3442 specifically indicates this is an insurance benefit. The coverage doubles the warranty term that comes along with the purchase of a new consumer item. For example, if a cardholder purchases a new television with a 12-month manufacturer's limited warranty, the credit card benefit would "extend" that warranty for a defined period (could be any length of time, usually 12 months) on the same terms and conditions.

Car Rental Insurance/Collision Damage Waiver Insurance

This insurance benefit reimburses a cardholder for damage or theft of a rental car. If the cardholder rents a car using a covered card and experiences an accident, or if the car is stolen, they could be reimbursed for the cost of repair or the cash value of the car. Often to be eligible for this type of coverage you must reject the rental company's coverage for physical damage and theft. This benefit is typically secondary to your automobile coverage and does not cover personal injury, personal liability, or third-party liability.

Ticket Saver Insurance

This insurance benefit reimburses a cardholder for the cost of an unused ticket in the event of a covered reason. For example, let's suggest a cardholder has tickets to the local opera but on the way gets into a car accident or experiences a medical emergency. In this situation, the cardholder could seek reimbursement for the unused ticket.

Purchase Assurance

This insurance benefit reimburses the cardholder in the event a covered consumer good—that is, recently purchased within, for example, 60 days—is lost, stolen, or damaged. For example, if a consumer purchases a new watch that is stolen the following week, the purchase assurance benefit would reimburse the cardholder (typically there are limits, such as $100 or $250) for the cost of the stolen watch, subject to certain terms, conditions, and limitations.

Final Thoughts

Credit card benefits are very unique because they are often paid for by a third party (e.g., financial institution and/or credit processing organization) and only attach by the use of a covered credit card. Many cardholders, unfortunately, do not take full advantage of these benefits and should carefully review their terms and conditions (sometimes referred to as the "Guide to Benefits") to fully understand their coverages, rights, and obligations. This esoteric segment of the insurance industry is rapidly proliferating as financial institutions and credit processing companies are fiercely competing for new customers and the offering of benefits continues to expand. Before reaching for your wallet to purchase that new television or making your travel arrangements, you should look to see what protections your credit card can offer.

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