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Credit card insurance perks: Does your card have you covered?

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Your credit card can help make life's little emergencies a tad easier to handle. But the next time you crash your rental car, drop your cell phone in a cup of coffee or get too sick to leave on vacation, your card could be there for you in ways you didn't expect -- as long as you play by the rules.

Credit card insurance: Does your card have you covered?As a free perk, some credit card issuers offer supplemental insurance, such as car rental collision insurance, travel cancellation insurance and even cell phone replacement coverage. So when disaster strikes, you may already be covered.

Don't be too quick to turn up your nose at buying your own insurance, however. Your credit card's offerings are secondary insurance, meant as a supplement to -- not a replacement for -- more comprehensive coverage. Most cards' coverage is riddled with exclusions, so the stars have to align perfectly in order for you to get your money. "Read the fine print and make sure you're absolutely clear about the coverage that's available through your credit card," advises Dan McGinnity, a spokesman for TravelGuard, a travel insurance company.

Check out our overview of credit card insurance to see what to expect from your coverage -- and whether you're getting what you pay for.

Rental car collision insurance
Instead of ponying up an extra $30 a day or so for your rental car company's insurance coverage, as a third of renters do, rely on your credit card's automatic accident coverage.

What's usually covered: Most credit cards cover collision repair, meaning that if you rent the car with your card (and decline the car company's insurance), your card will cover the cost of fixing a car you damage. When Chris Iwasa, of San Diego, dented his rental this summer, he had to pay Thrifty, the car rental company, $330 for the repair. But once he submitted a claim, along with the body shop bill and some other paperwork, at Visa's online Auto Rental Collision Damage Waiver Claims Center, his Visa Platinum card reimbursed him in full. "From the date of the accident to the receipt of the check, the process took about two months," says Iwasa.

What's usually excluded: Liability and injuries aren't part of the deal, so if you hit someone else, you'll have to rely on whatever your regular auto insurance covers. A laptop or suitcase stolen from your rental won't get reimbursed by your card. Plus, your rental car company will likely charge you a per-day fee for the time that a smashed-up car was in the shop and off the road, and those loss-of-use fees won't be covered either.

Travel accident insurance.
Think of it as a miniature life insurance policy, free for buying your trip tickets with your credit card. If the unthinkable happens while you're on the move, your credit card provides a payout to you or your survivors.

What's usually covered: Death or dismemberment resulting from an accident on a plane, train, bus, boat or other official carrier generally qualifies for some cash, typically between $100,000 and $200,000. You're also usually covered when you're being shuttled to and from the terminal. Most credit card agreements spell out the terms of agreement in grisly detail: If you die, your survivors get the full benefit. Lose just a thumb and an index finger on the same hand and you'll only get a quarter of the money. But -- score! -- you'll get paid even if the digits are later reattached.

What's usually excluded: If the accident happened while you were traveling to or from your regular workplace, even if you paid for the train tickets with your credit card, you probably won't be covered. Plus, anything other than dying or losing a limb is generally out of bounds, so you won't get any help with health issues along the way, such as a heart attack. A separate travel insurance plan, which usually costs between 6 percent and 8 percent of the total price of your total trip, will likely protect you in the event of all kinds of away-from-home health issues, including medical evacuation. "Credit cards, in general, cover far less than traditional travel insurance," says Linda Kundell, spokeswoman for the U.S. Travel Insurance Association.

Trip cancellation insurance
If an emergency or an illness keeps you from using those nonrefundable plane tickets you paid for with your credit card, your card company may reimburse you for them.

What's usually covered: While only 15 percent of cards offer it, travel cancellation insurance reimburses you the cost of nonrefundable flights if an emergency or illness derails your travel plans. And it happens more often than you'd think. "Trip cancellation or interruption represents about 75 percent of our claims in the United States," says McGinnity. "The vast majority of claims that are filed are either, 'Something happened, and I can't go,' or 'Something happened, and I have to go home.'"

What's usually excluded: If you have to cancel a trip because your fibromyalgia acts up, you'll probably be on your own, since cancellations due to pre-existing conditions aren't covered. Only a tiny handful of high-end cards cover weather-related trip delays, so if a snowstorm strands you in Chicago, you'll have to eat the cost of an extra night's hotel yourself. Plus, most credit cards exclude war zones, so if you booked a sightseeing tour to Afghanistan, you're on your own.

Lost luggage insurance
In 2009, almost four bags were lost or otherwise mishandled for every 1,000 passengers -- one of the lowest figures in memory, but still no fun if one of those four was yours. Some credit cards will reimburse you for the items in your suitcase the next time your checked luggage goes permanently astray.

What's usually covered: If you paid for your tickets with your credit card and your checked baggage is stolen or lost by the carrier, you'll usually be eligible for up to $3,000 of coverage for the replacement value of your lost stuff.

What's usually excluded: Read the fine print carefully because some credit cards that offer this perk also maintain a bizarre laundry list of items they won't insure, including glasses, travelers checks, skis, tennis rackets, hearing aids and cameras. And if your luggage is just horribly delayed, forcing you to buy a whole new wardrobe for your stay in Paris, you're on your own for the bill. Like many other forms of credit card insurance, this won't kick in until after you've filed a claim with the travel carrier and sometimes your homeowners insurance.

Cell phone replacement insurance
Pay your cell phone bill with your credit card every month, and the next time your cell phone is rendered inoperable, your card issuer will pay for your new one.

What's usually covered: If your phone gets damaged or stolen, you can file a claim and be reimbursed up to $250 for your new phone, minus a $50 deductible. (Just be sure to pay off your credit card bill in full each month; otherwise, the interest that you pay on your card could total more than the amount that you'd get reimbursed.) 

What's usually excluded: If your phone mysteriously disappears or gets lost, you can't make a claim. Plus, cards that offer cell phone protection tend to provide a host of exclusions. For instance, Citi won't cover you if your phone floats away in a flood, is crushed by an earthquake, is contaminated by radioactive waste or, strangely, is stolen from a construction site. And if you miss a cell phone payment, your protection plan is suspended until the next calendar month after you pay again.

See related: When getting a cell phone, your credit score could be a factor, Credit card insurance: Don't believe the hype, Credit card travel perks make them good vacation partners, Credit card agreements unreadable for 4 in 5 Americans, Don't automatically refuse rental car company's insurance coverage

Published: October 25, 2010


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