Life Insurance Credit Cards: Benefits And Drawbacks

Credit cards can offer a range of benefits, including cash withdrawals, cashback, and reward points. One less well-known benefit is free insurance cover. The type of insurance provided by a credit card varies, but it often includes personal accident insurance, purchase protection insurance, and insurance against fraudulent transactions and theft. The specific benefits depend on the card issuer, and the cardholder should refer to the services guide or the issuer's website for full details. The premiums for these insurance covers are usually paid by the card issuer, meaning the cardholder doesn't have to pay any additional costs to enjoy the coverage. Credit life insurance is another type of insurance that is used to pay off specific loans, such as mortgages or car loans, in the event of the policyholder's death. This type of insurance is often offered by lenders as an optional add-on during the loan process.

Credit cards that offer life insurance

Credit cards are increasingly becoming essential financial tools, offering benefits beyond just a means of payment. One such benefit is insurance coverage, which can be a financial safety net in unexpected situations. While credit card insurance is available for a nominal monthly fee, it is worth noting that the specific benefits and eligibility requirements vary across card providers.

• ICICI Bank Diamant Credit Card: Offers Rs. 3 crores of coverage for air accidents.
• HDFC Bank Credit Card: Provides coverage of up to 5 times the available credit card limit, up to a maximum of Rs. 50 lakhs.
• Axis Bank Privilege Credit Card: Offers air accident coverage of Rs. 25 lakhs.
• Citi Prestige Credit Card
• Canara Bank Credit Cards (Visa and MasterCard): Coverage ranges from Rs. 2 lakhs to Rs. 4 lakhs.
• Etihad Guest Premier Card from SBI
• Canara Bank Credit Card (Global Gold): Coverage ranges from Rs. 4 lakhs to Rs. 8 lakhs.
• Vistara Signature Axis Bank Credit Card
• MoneyBack Credit Card from HDFC Bank
• ICICI Bank Rubyx Credit Card: Offers Rs. 3 crores of coverage for air accidents.

It is important to remember that the insurance coverage provided by credit cards is typically limited to personal accident insurance. For comprehensive life insurance needs, it is recommended to purchase separate term insurance. Additionally, carefully review the terms and conditions of the insurance coverage to understand the specific benefits, limitations, and eligibility criteria.

Credit card insurance benefits

Credit cards can come with a range of insurance benefits, which vary depending on the card. The most common type of insurance provided by a credit card is personal accident insurance, which pays out in the event of the cardholder's accidental death. This insurance can also cover serious injuries, such as loss of speech, sight, hearing or a limb.

Other types of insurance offered by credit cards include:

• Purchase protection insurance, which covers items bought with the card that are damaged, lost or stolen.
• Insurance against fraudulent transactions and theft.
• Lost baggage insurance, which covers the cost of lost or stolen checked baggage on flights.
• Extended warranties on purchased items.
• Car rental insurance, which covers the cost of damage or theft of a rental car.
• Trip cancellation and interruption insurance, which reimburses you if your trip is cancelled or cut short due to illness, severe weather, etc.
• Baggage delay insurance, which covers necessary purchases such as clothing and toiletries if your bags are delayed.
• Roadside assistance, which can help connect you with nearby roadside help or cover the cost of certain services.

It's important to note that the specific benefits and coverage details will depend on the type of credit card you have. Additionally, there may be requirements and limits to these benefits, such as time limits or claim and annual limits.

How to claim insurance benefits

A life insurance credit card is a credit card that offers free insurance cover, which is usually personal accident insurance. This means that in the event of the cardholder's death, the insurance company will pay off the outstanding balance on the card, so that the cardholder's family is not affected by the outstanding payments.

• Check the eligibility criteria: Only primary active cardholders are usually allowed to claim insurance benefits. A primary active cardholder is typically someone who has used the card at least five times within 89 days of the incident. However, eligibility criteria can vary depending on the card type, credit limit, and card issuer.
• Understand the settlement process: To claim insurance benefits, you need to know how to file a claim. This information can be found in the services guide that comes with the card. If you have lost the guide, you can find the information on the card issuer's website or by contacting their customer care team.
• Prepare the required documents: The documents required depend on the type of claim. For personal accident insurance, the nominee will need to provide a notice of death within 30 days of the cardholder's death, which includes a description of the circumstances of death. A death insurance claim must then be filed within two months of the incident, along with the following documents: a First Information Report (FIR) and a medical officer's report. If these documents are not in English, they will need to be translated and notarised. The insurance company may also request additional documents.
• Receive the settlement: The settlement amount will be paid to the beneficiary by cheque, after any outstanding balance on the card has been deducted.

Paying for insurance with a credit card

Credit cards are a convenient way to pay for everyday expenses, and they can also be used to pay for insurance premiums, depending on the type of insurance. While many large insurers accept credit card payments for auto insurance, life insurance companies may refuse, only accepting credit card payments for the initial premium. Homeowners insurance providers may or may not accept credit card payments, depending on the status of your mortgage.

Advantages of Paying for Insurance with a Credit Card

Using a credit card to pay for insurance can have several benefits:

• Flexibility: Credit card bills are due at the same time each month, so funds for purchases made with a credit card won't come out of your bank account until the bill is paid.
• Reward programs: Some credit cards offer cash back or other rewards, and using a credit card to pay for insurance can help earn those rewards.
• Discounts: Many insurance companies offer discounts for paying the entire policy upfront, and using a credit card makes this possible. Additionally, some companies offer autopay discounts, which can be set up with a credit card.
• Automated payments: Credit cards can be set up for autopay, so your insurance premium is automatically charged to your card each month, eliminating the need for manual payments.

Disadvantages of Paying for Insurance with a Credit Card

There are also some potential drawbacks to consider when paying for insurance with a credit card:

• Damaged credit score: If you already utilise more than 10% of your available credit limit, adding your insurance bill to your credit card usage could negatively impact your credit score. According to Experian, if your credit utilisation exceeds 30% of your credit limit, it can have a significant adverse effect on your score.
• High-interest rates: If you are unable to pay off your credit card balance in full each month, your debt and interest charges can quickly accumulate.
• Additional fees: Some insurance companies charge a fee for paying with a credit card, which may outweigh the benefits of using a credit card.

Factors to Consider when Paying for Insurance with a Credit Card

When deciding whether to pay for insurance with a credit card, it is essential to consider the following:

• Check for fees: Ensure your insurer doesn't charge any additional fees for paying with a credit card, as this could negate the benefits.
• Pay off credit card balance: To avoid credit card debt and high-interest rates, it is crucial to pay off your credit card balance in full and on time each month.
• Compare payment methods: Evaluate the alternative payment methods offered by your insurer, such as debit card, electronic funds transfer (EFT), or check, and consider the potential fees and discounts associated with each method.

Credit life insurance

Credit cards do not typically offer credit life insurance, but they do often include other types of insurance, such as personal accident insurance, purchase protection insurance, and insurance against fraudulent transactions and theft.

Frequently asked questions