Credit Cards & Insurance Policies: Should You Club The Two?

While an insurance product purchased from your credit card company may have the same quality or benefits as one purchased directly from an insurance provider, the nature and status of the agreement between the credit card company and insurer may cause some issues to arise, says Jay Sampat

Credit card companies are falling all over each other to get more people to sign up for their products. One such move in this direction is offering insurance products to customers, often at rates much below those available directly from the insurer. These include life insurance products as well as general insurance products like household and health insurance.

The question on everyone’s mind is whether one should buy protection directly from an insurance company or sign up for the insurance schemes of credit card companies. Let’s start by taking a look at the health insurance policies offered by credit card companies.

Health cover purchased through a credit card scheme is provided by one of the several general insurance companies with which the credit card company has entered into a long-term agreement. The card company, therefore, only works as an intermediary in this case.

Once the cardholder has purchased the medical insurance, it works as it would if the policy were purchased directly. In case of a claim, the cardholder would have to lodge the claim directly with the insurance company and would have access to the network hospitals through third party administrators (TPA). This mode of operation should take care of the fear that insurance purchased through a credit card is inferior in service quality or benefits as compared to one purchased directly.

Additionally, it works out a lot cheaper. This is because the card company negotiates a group medical insurance scheme for its cardholders with the insurer for bulk purchases; the bulk purchase yielding a discount that is often as high as 50 per cent, which is passed on to the purchaser.

On the face of it, medical insurance purchased through your credit card company appears to have no problems whatsoever. However, as the saying goes, there are no free lunches. The main issue with insurance policies purchased through credit card companies is the stability of the policy.

It could happen that the credit card company has terminated its agreement with the insurer or has not renewed the scheme at the end of the term. This is particularly damaging if the termination happens close to your policy renewal date. Since most card companies renew such polices automatically, while you are under the impression that the policy would be renewed, the card company may send you a letter much after the expiry of your policy that its arrangement with your insurer has come to an end and that you need to renew the policy on your own.

This break in continuity is disastrous in the case of medical insurance. Premium advances with age, and hence, you would have to pay a higher amount for a new policy. More importantly, medical policies come with many exclusions, several diseases not being covered for a certain period from the date of purchase of the policy. On purchasing a new policy, that exclusion period would start afresh. In comparison, your existing policy, by virtue of being in force for some years, would probably have covered everything.

Moreover, most insurers provide some incentive for claim-free renewals. This is usually in the form of an increase in cover without any hike in premium. Such benefits are lost in the case of fresh purchase, either because of the hassle in transferring these accumulated gains to the new policy or due to non-availability of such a clause.

Even in cases where you have advance information of termination of agreement between the credit card company and the insurer, besides being lot more expensive, directly renewing the medial policy with the insurer it is not an easy task. This is because most credit card companies have their back offices in Chennai, and therefore, insurance is also purchased locally. In the event of termination, it is difficult for a person based in another location to renew the policy. This becomes all the more difficult in the case of public sector insurers who have no electronic linkages and many layers of bureaucracy.

When life events spin out of control, having the right cover can be a saviour. While medical insurance purchased through your credit card company turns out to be a lot cheaper, continuity of the policy is a big concern. Hence, such insurance is not advisable if it is your only fall back in case of a mishap.