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Free Insurance On Credit Card: A Value-Add Or Marketing Gimmick

“There is no free lunch.”

Karen Menezes Karen Menezes 14 September 2016

The debate of whether free insurance on credit card is a value addition or not still continues. Here is why you should not rely on free insurance that you receive on credit card.

Health Insurance on Credit Card

A lot of times, credit card companies hard sell the credit cards by advertising various offers, rewards, and freebies. And there is a good chance that if one is not careful enough; he can fall for these gimmicks. However, the one most unfortunate promise that some of the card companies make is that of “free insurance.”

And given the seemingly tedious process of filling the application form and undergoing the medical tests and paying a handsome premium, you might think oh, here I am getting insurance for free, without even applying for one. This is one of the reasons I’ve seen people carrying many credit cards, most of which don’t even get used since there is a perception that if something happens tomorrow, the credit card company will pay for the insurance.

However, this approach is not only deeply flawed but can also cause a lot of pain to you in case you meet any unfortunate event. In other words, relying on insurance available on a credit card is nothing but an illusion of protection, and by the time one realizes it, it can be too late.

In this article, let us discuss some of the reasons why you should not rely on free insurance offered on a credit card, and the options you have to secure your family’s future.

How Does Free Credit Card Insurance Work?

A credit card company/institution wanting to offer insurance on credit card ties up with the respective insurer as a group policyholder. So, there is a group insurance contract between the credit card issuer and insurer. Under the contract, the credit card holders as on a given point in time are the beneficiaries of the contract. The agreement spells out the terms and conditions of the cover to be offered to the credit card holder. The free insurance available on a credit card can be of different types: life, medical, personal accident, travel, lost baggage, credit card liability, etc. When you receive the new card, there is a service guide that comes along with the welcome kit. This service guide contains the terms & conditions of the credit card, and if card issuer offers free insurance, the specific terms & conditions for eligibility of the insurance cover, features, claims process, etc. is spelled out in that booklet.

Reasons Why You Should Not Rely On Free Credit Card Insurance

Following are some of the reasons why in my view, you should not count on the free credit card insurance:

  • Very Low on Features:

Before purchasing the credit card just because it offers a free medical cover, check the fine print for the extent of coverage. Health insurance (or for that matter, life or personal accident insurance) is a very generic term however when you read the fine print, the ifs and buts of the cover become apparent to you & you realize that the cover isn’t vast enough as what you had imagined. Now, once you’ve got a grip on what is available on the credit card, compare it with the features in any standalone medical insurance policy. And you’ll, in most situations come to realize that what is available on a credit card is a token insurance, which is not even enough to meet the necessary requirements of your family.

  • Extremely Restrictive Conditions:

The finer reading of terms & conditions for insurance on a credit card is so restrictive that it can make a person knowledgeable on these matters laugh: the terms & conditions are so tight that you can wonder if there is any intention to pay the insurance claim or not. For e.g. there is a requirement that the card should be used x number of times, & within x no. of months before the event takes place.

Now, how can you expect anyone to foresee the unfortunate event, & transact on the card so that he can avail of the insurance? If you see the finer logic, the underlying intention is not to offer an insurance protection for the card user but to ensure that for the fear of losing insurance cover, the user should keep transacting on the card. On the flip side, this condition can cause reckless spending tendencies & can even dislodge your cash flow planning and fiscal health.

  • Credit Card Insurance is a Group Insurance Contract:

Another drawback of relying on insurance cover on a credit card is that it is a group insurance contract. This means that the contract is between the credit card issuer and insurance company, and you as a credit card user are merely a beneficiary under the contract. So, effectively, you are a mere spectator & don’t have any say in the deal.

Group insurance contracts are usually yearly contracts so one fine day, the issuer may decide to withdraw the cover or change the terms & conditions to restrict the features of the cover. In such cases, you cannot assert any right of being consulted simply because you are not a party to the contract.

Also, even if there is a claim and insurance company denies it, you’ll have to route your grievance through the credit card company and cannot directly approach the grievance channels in the insurance company or regulatory bodies set up in this regard.

  • Possibility of Break in Insurance Cover:

If you feel there are better deals available on other cards, and surrender the card, you lose out on the insurance cover from the day you surrender the card. Also, imagine the fact that you’ve relied all these years on credit card & one fine day, the feature is withdrawn from the card or in a rare case, the company shuts down. In such a case, what will you do? If you’re above 40, suffering from a couple of lifestyle diseases & at that point go out in the market searching for a medical insurance, you can be prepared to be disappointed. The premiums may be huge; the policy may impose lifetime exclusions on your pre-existing condition or worse, deny the cover altogether.

  • Free is Not Really FREE:

As Dan Ariely explains so well in his book “Predictably Irrational,” research has proved that consumers behave irrationally as soon as there is a promise of something free is made. If you see the trend of credit card issuers offering free insurance and such other frills are offered only on the cards which charge an annual membership fee. Such free insurance is no more available on lifetime free credit cards. So, if you think your insurance cover comes for free, it is not. The membership fee that you pay on the card, though a small amount is like a premium you pay for the insurance and hence it does not come for free.

As a Consumer, What Should You Do?

The reasons mentioned should be conclusive enough to put the reality of these free insurance covers on credit cards in front of you. Speaking plainly, these are no less than marketing gimmicks which lay down the “FREE” trap for innocent consumers to fall for and suffer later.

As a consumer, never rely on these free insurance covers, be it this or even a group insurance cover offered by the employer. Assess your family’s insurance requirements, study and compare products available in the market and then purchase the cover. Taking help of an insurance advisor like Coverfox can especially help in deciding you on the right cover, and standing beside you at the time of claims.


Have you ever come across someone’s free insurance on credit card come to his rescue in case of unfortunate medical emergencies? Insurance on a credit card is one big illusion & primarily offered to help up drive credit card sales, rather than providing insurance protection.

It’s time to get real on insurance matters, and purchase an actual insurance cover by first analyzing the family’s requirements and then doing a health insurance comparison for best options available in the market.

Karen Menezes
Written by Karen Menezes
An optimist at heart, Karen loves to see the world through a pair of rose-tinted glasses. An award-winning blogger, she loves to dream with her eyes open. Writing is not her passion, it’s an OCD! If at all she isn’t writing, you can find her shopping online or experimenting with DIY recipes.