Credit Card Travel Accident Insurance: What Does It Cover?January 11, 2012
What are the odds of dying during travel? Obviously this is an unpleasant topic to think about – but if you have a family – you owe it to them to at least consider the odds.
Nowadays many credit cards include travel accident insurance as a benefit. This is essentially a limited form of life insurance, as it covers you in the event of death or dismemberment during some types of travel. But if you think the coverage it offers is on-par with regular life insurance, then think again.
Term Life Insurance vs. Credit Card Travel Accident Insurance
If you have term life insurance, your policy will usually cover you in the event of death no matter where you are in the world (including during your travels). Of course the exact coverage will vary by policy and there are some exclusions (death from war and terrorism are two examples) but generally speaking, if you die during a trip you will be covered.
Many people wrongly assume that the travel accident insurance from their credit card affords the same type of coverage, but nothing could be further from the truth. For starters, you are only covered during Common Carrier travel which you paid for using your credit card. Travel as a ticketed passenger on an airline, train, ship, and bus usually qualify as “Common Carrier.”
So in other words, the credit card probably covers you while you are on the plane, but what happens after? Once you arrive at your destination, you won’t be covered for anything. So let’s say you’re on vacation and die from the West Nile virus, a scuba accident, a jellyfish bite, or car accident. Guess what? None of those are covered. The only “accidents” being covered by this travel accident insurance are those which are eligible and occur during your Common Carrier travel which was purchased with the card.
What Are The Odds?
When you consider the odds, it’s quite obvious why most travel and cash reward cards can offer $100,000 to $500,000 in travel accident insurance for free. Simply put, the odds of ever using it are so remotely thin. For example, airlines are probably the most prevalent form of Common Carrier. According to this article on PBS titled “How Risky Is Flying?” the annual risk of dying in a plane crash is only about 1 in 11 million.
Now compare that to say, the annual risk of dying in a motor vehicle crash: about 1 in 5,000 for the average American. That’s relatively high when you consider that’s the chance per year. So let’s say you’re on a trip and die from crashing your rental car… your credit card’s travel accident insurance will not cover that. However, if you have a term life insurance policy, you most likely will be covered.
Like the phrase goes… you get what you pay for. Since you don’t pay anything for this credit card benefit, it’s hard to complain about it. However I think most people would agree it’s of very little value, since it only covers you under very limited circumstances. This is why it’s important to have a good term life insurance policy.
Michael is the founder of CreditCardForum, which is a website for comparing the best credit card offers and discussing their related issues, such as the one above.