Credit Card Travel Insurance
Posted February 8th, 2009 and last modified November 23rd, 2011When it comes to travel insurance, credit cards are one of the cheapest and hassle-free ways to go about it. However, there are requirements and prerequisites involved before most credit card travel insurance becomes valid.
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While the majority of gold, platinum and travel credit cards offer ‘Overseas Travel Insurance’, each will vary in cover. You’ll need to compare insurance policies till you find the perfect one for yourself. For instance, a family going on an overseas skiing holiday may compare the following two cards.
- Card A offers 6 months international cover with up to $20,000 cover for yourself and your belongings.
- Card B offers 3 months international cover with $10,000 cover for yourself and your family, which includes all types of injuries.
Card B would therefore be a more suitable cover if you were traveling with your family, while Card A would almost be obsolete.
Travel Insurance Credit Card Comparison
Insurance Policies Covered
These are ‘complimentary’ of credit cards with travel benefits, and are generally covered in the cost of the annual fee. The types of policies and extent of cover from credit card travel insurance tends to range from:
- The Extent of Cover. Tends to range from 3 months to 12 months, dependent on the status and annual fee of your card. Can also refer to the value of which property and payouts will be made up to.
- General Overseas Travel Insurance – Average cover sits at about $20,000. This will cover flight cancellations, luggage loss, delays, and medical. Look out for the reach of the cover for this as well – some policies don’t cover cash loss in baggage for example.
- Purchase Security Insurance – whenever you make a purchase domestically or internationally on your card, your insurance will either cover the product from theft or damage from 30-150 days. Note that cash, items for the purpose of resale, business products, animals or plantlife are generally not covered among other items. Like any insurance policy, go over the fine print very carefully to avoid getting stung by a lack of cover.
- Extended Warranty Cover – Most popular and common household, entertainment and luxury items that come with a warranty will be extended from 6 months till up to 24 months.
- Rental Vehicle Excess Insurance – Credit card insurance policies occasionally cover any rental vehicle access. Cover ranges from $1000 up to $6000+. Be wary that for this insurance to apply, you’ll most likely have to take out the full comprehensive insurance plan with the rental company. If you’re interested in this insurance and it doesn’t come complementary with your current card, some ANZ credit cards give rental insurance for $24 a year.
- Transport Accident Insurance – If you or your family should get severely injured or die in a transport accident while overseas, you may be compensated from $100k to $1million. This is an important feature to go over, as family cover is not always present. The severity of injury may also come into question.
- Property and Personal Belongings Insurance – If one of your items is lost or stolen overseas, your insurance will pay out equal to the product value, minus depreciation. There are mitigating factors and circumstances to take into account – if your belonging is stolen from an unmanned vehicle for instance, coverage may be severely limited. Some policies will not even cover the item if it’s stolen from a public place.
If you’re interested in a credit card with travel insurance, browse the best platinum and gold credit cards on offer to Australians. Complimentary travel insurance is an easy way to bundle your insurances together, and pay less than taking cover out individually. The only thing you’ll have to be wary of is the general inflexibility of travel insurance policies on credit cards.
Pitfalls & Benefits
The pitfalls are fairly clear – high interest rates and the illusion of wealth often lead people to spend until they are in serious debt. Conversely, if you use your credit card wisely then you can enjoy the finer things in life when you like. One other great benefit of credit card usage is what is called credit card insurance. Essentially, credit providers link insurance benefits to credit card usage. But how legitimate is this practice? And how does credit card insurance compare with regular insurance claims? The aim of this article is to answer these and other questions surrounding credit card insurance.
What Is Credit Card Insurance?
Qualifying For A Credit Card
Qualifying for a credit card is not the simplest process. You need to have an adequate, stable income, which promises that you will be able to pay back all of the money that you borrow, with added interest. You need to make bigger investments, be it in the form of assets such as vehicles, or homes, which will improve your credit rating. In short, you need to be a certain kind of customer, one that the bank can make money off.
Marketing Credit Card Insurance
There are numerous ways in which banks try to entice people into applying for a credit card. These range from low interest options to raffle-based competitions. Credit card insurance is one such scheme. The bank says that they will give you more than a credit card. They are willing to provide you with a comprehensive insurance scheme that is directly tied to your credit card account. If you qualify for the card, the bank will cover your medical, travel and salary insurance. They then proceed to present you with a very long list of benefits that is, in all honesty, incredibly competitive, and you’re hooked. You go back home with financial freedom in your wallet, and a scheme to protect your family to boot.
Is Credit Card Insurance Legitimate?
Appearance
It is true almost across the board that credit card insurance offers superior benefits to ordinary insurance schemes. The first obvious question then is why don’t we all automatically rely on credit card insurance?
Exploring Credit Card Insurance
Credit card insurance is linked to your credit card account, which is in one name and attached to one person but this is already problematic as most credit card users have strong family obligations. And secondly, what are the hidden pitfalls of this insurance? It seems like the most comprehensive way to go – after all, the bank knows all about your financial status, and they’ve just offered you ‘free’ insurance. But be warned that the list of conditions and loopholes is extensive and different for each bank, and all is not as idyllic as it may seem. Keep reading for an in-depth analysis on the benefits and disadvantages of credit card insurance.
The Advantages Of Credit Card Insurance
Before it seems that this article is trying to talk you out of reliance on your credit card insurance, let’s take a look at the advantages associated with this kind of insurance.
It’s ‘Free’
The most obvious advantage of credit card insurance is that you do not have to pay a monthly premium. That’s right – no more subscription fees, excesses, and limitations. This is a powerful factor in the defence of credit card insurance. The bank is able to offer such insurance for two reasons. Firstly, banks handle massive amounts of money, and are thus able to back up such extensive schemes. And secondly, credit card insurance, although offering minimal cover for family members, is essentially aimed at covering individuals, that is, the card holder himself. This means that they do not have to create a policy that takes into account the card holder diabetic wife and six accident-prone children. They are only providing significant cover for the cardholder.
Great Benefits
When you compare credit card insurance to standard insurance policies, you will be struck by the massive discrepancy in payouts should something happen to you. In general, credit card insurance will pay out as much as ten times the amount that your standard insurance company would, for the main cardholder. This is particularly true of gold, platinum or black level credit card insurance. If you were to choose an insurance option based purely on the magnitude of cover they offer you, then credit card insurance would be the winner hands down. Even the secondary cover that is offered to your spouse and family is extremely competitive. Medical and automotive cover is particularly good.
Diverse Coverage
Credit card companies really do try to cover all bases with their coverage schemes, and everything falls under one policy. For example, you can receive life cover, medical insurance, travel insurance (which often activates automatically), salary protection, and theft coverage. Ordinary insurance companies would make such covers extras, and you would be expected to customize your plan so that you covered all possibilities, but this would raise your premium exponentially.
The great thing about credit card insurance is that credit cards are accepted globally, and so you will also have the benefits of the scheme with you regardless of where you are in the world. Let’s imagine that you plan a family trip. If you buy the flight tickets with your credit card, you will receive full cover, and your family will be covered to some extent. You will also automatically receive up to three months worth of travel insurance in some cases. If you chip a tooth upon arrival, the treatment will be covered. Should your wife lose her purse, this will be looked after. And most importantly, should something unforeseen happen to you, your family will receive a huge death payout.
The Disadvantages Of Credit Card Insurance
The safety and security offered by credit card insurance can put you at ease when travelling, but there are many pitfalls and loopholes linked to this kind of scheme, which need to be discussed here before you take the credit card plunge.
‘Free’ Is Relative
As has been previously mentioned, credit card insurance is directly tied to your credit card account, which, when used, builds up increasingly large debt. The first cunning ploy of the credit card company does not lie with hidden clauses or fine print; it lies in the fact that the schemes are generally only activated when you use your card. For example, you will receive travel insurance and coverage on your rental car if, and only if, you put the costs on your credit card. So, you have to use the card before you get any benefits, and that will cost you a lot of money in the long run.
Long-term Implications
Paying by credit card, while convenient, raises the price of any purchase that you make because you have to add interest to the price of the purchase. While it seems that you are getting great free insurance every time you use your credit card, the truth is that the interest on credit card repayments is so high that you are paying for the coverage and then some. This is part of the way in which banks make their money.
Credit Card Insurance Is Selfish
Your credit card is yours, and it is only fitting that you receive the benefits of credit card insurance, but unless you are a millionaire playboy, you will invariably have familial responsibilities. This is another big negative of being reliant on credit card insurance alone. Your family may receive a substantial payout should you pass away, but the other facets of the policy are really not geared towards broad family protection.
Disproportionate Payouts
In some cases, a payout for medical treatment for you could be $1000, but for your family it is only $1500. The benefits are very much out of proportion. Once again this is linked to the fact that the bank themselves is trying to maximize profit and cannot afford to cover your entire family, but is this really what you are after?
Loose Definitions, Legalese And Loopholes
By law, banks and insurance companies alike must inform you of all of the rules and limitations on insurance plans, but often they choose to do so in as vague a way as possible so that they can avoid payouts. Unfortunately, this is highly evident when you encounter the documentation that accompanies a credit card insurance plan. Let’s just take two terms that are commonly thrown about in said documentation:
- Dependent
- Reasonable
Redefining Dependent
Credit card insurance, as discussed above, is designed to cover one person, but they do cover your family. The term for someone who is covered under the blanket protection of a policy is called a dependent. Credit card companies twist this term as they see fit, and no two seem to agree on what constitutes a dependent. For example, your spouse is automatically considered a dependent, but what about your children? When do they become in-dependent?
Age Factors
Companies seem to create criteria at will, with some considering age a factor (anything between 16 and 19), as well as education level – ironically, university students are dependent despite their advancing education, whereas those who do not pursue tertiary education and are thrust onto the job market with no skills are fine to fend for themselves.
Redefining ‘Reasonable’
‘Reasonable’ is another term that seems to take on different meanings depending on the context of the credit card company. If you think that spending $5000 on emergency medical treatment is reasonable, then make sure that your credit card insurance provider agrees, otherwise their cover will simply fall away. There are strict terms about what will be covered, so make sure you know these beforehand.
Let’s Talk Loophole
There are countless loopholes in any insurance policy, but those of credit card insurance are notably more complex and limited. Things that you would ordinarily take for granted are never given. Returning to the holiday example, tickets bought on the credit card should automatically lead to cover for your entire family correct? No. If the tickets do not exceed a certain amount, none of you will be covered. Once again we can see that credit card insurance is a way to boost credit card sales and bank profits.
General Tips And Conclusions
The world of credit card insurance is fraught with danger if you are naive enough to believe the surface promises that banks make to you in order to convince you that you require a credit card. As the above discussion shows, there are advantages associated with credit card insurance, but then again, the dark side of these policies is evident.
Research Is Key
You need to be a savvy customer and go through all of the fine print in detail. Ask questions, present possible scenarios, and make sure that you are well informed about all of the possible realities associated with your credit card insurance. The only real advice worth giving is that you should be up to date, well-informed and prepared at all times. Do not be afraid to discuss credit card insurance policies with the banks upper management. Sales personnel will try and sell you something – you may have a better, more honest sales pitch from the executives.
To conclude, it is clear that credit car insurance is a bit of a wolf in sheep’s clothing. The benefits are extraordinarily good if you are wealthy and live alone, but how many people live such lives? Insurance is designed to offer mass protection, and the major shortcoming of credit card is that it is a parachute that is meant to protect only the pilot while the whole plane goes down. At the end of the day credit card insurance is yet another way for banks to make money, and you need to think long and hard and do your research before choosing such a scheme ahead of a more traditional insurance policy.
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