Purchase Protection on Credit Cards
Sometimes called purchase security insurance or merchandise protection, purchase protection is a type of insurance often offered on higher end cards, such as platinum and black cards, typically within a suite of other insurances such as extended warranty insurance and price protection insurance. With that being said, there are some basic cards that offer purchase protection, where it is either offered as a complimentary feature, or provided for a fee.
Well then, how does it work? Purchase protection covers your eligible card purchases, so that if they are lost, stolen or accidentally damaged within a certain period of time, you can make a claim under your card’s policy. While there are limits and exclusions – as there are on any type of insurance – purchase protection can be handy to have in your back pocket, perhaps providing cover where you otherwise may not be able to make a claim.
What It Covers
While each policy varies, for the most part purchase protection typically only covers items bought using the card that are new, and that are for personal use. That means items bought for business purposes are not covered. While some policies cover items purchased overseas, others only cover purchases made in Australia.
And gifts? Again, this can vary from policy to policy, but some will still offer cover on items that are purchased using the card, then given as a gift to someone else.
What kind of cover can you expect on your purchases? If you buy an eligible item using your card, and it is lost, stolen or accidentally damaged within a certain period of time (as set out in the card’s policy), you can make a claim on that item. If your claim is accepted, the insurer will either pay out the cost of the item, or pay to have it repaired.
If you are entitled to claim for the item under any other policy, such as extended warranty, purchase protection will typically make up the difference, so that the total loss is covered.
Brianna buys a laptop for personal use using her card, but accidentally drops it on the way to work two months later. It is unfixable. As an eligible claim under her card’s purchase protection insurance, she gets the full cost of the laptop back so she can buy a replacement.
Jay uses his card to buy his girlfriend a ring for her birthday. While swimming in the sea three weeks later, she loses the ring in the water. Jay’s purchase protection covers this, so he is able to make a claim on the lost ring, and buy another to replace it.
Sophie buys a new TV on her card, then one month later, someone breaks into her house and steals it. As it’s covered on her card’s purchase protection insurance, she makes a claim and gets the money back on her lost TV, allowing her to buy a new one.
What It Doesn’t Cover
As with any insurance policy, knowing what is not covered is as important as understanding what is covered. Again, this will vary according to the policy, however, common exclusions include antiques, motor vehicles and vehicle parts, tickets, cash and traveller’s cheques, and perishable and consumable items such as food.
In terms of the circumstances under which an item is lost, stolen or damaged, these can also affect whether an item is claimable. You may find that:
• Items are not covered if they are lost or damaged as a result of flood, earthquake, wear and tear, fraud or illegal acts.
• Items are not covered if they are lost or damaged as a result of being left unattended in a public place, in an unlocked motor vehicle, or in an unattended motor vehicle overnight.
• Items such as jewellery and watches are not covered for loss or damage in baggage unless hand carried by you (so, there would be no cover if they were lost or damaged in transit by an airline, for example). Items lost or damaged within the postal system may also not be covered.
For full details on what your policy covers and doesn’t cover, check your PDS.
Most policies place limits on claims with regards to the period of time in which the claim must be made after purchase, and the dollar amount that can be claimed.
In most cases, purchase protection policies allow claims to be made up to 90 days after purchase. Some premium cards may extend this cover to up to 120 days, or even up to six months. Obviously, the longer the claim period, the more extensive the cover, making it all the more valuable to you as the cardholder.
It’s worth noting that there may also be a limit placed on the amount of time between when the event occurs and when the claim is made. For example, even if an item is lost or damaged within the claim period, you would need to make the claim within a certain period of time after that for the claim to be valid.
As for limits placed on claim amounts, this again will vary according to the policy. The amount you can claim on any item will be limited to the price you paid for the item when you bought it, after deducting any compensation you can receive by other means, such as a warranty on the item or a claim against an airline.
Individual limits may be placed on specific items, such as jewellery or fine art. There may also be an individual claim limit, and an overall annual claim limit, specifying how much you can claim within each year.
Arnie loses his watch in February, after paying $3,000 on his card for it in January. He receives $2,500 after making a claim, as that is the limit placed on jewellery claims by his policy.
In July, Arnie goes to the snow in New Zealand, and drops his new phone at the airport. He makes a claim and receives $1,200 back for the phone he purchased outright using his card in May.
In October, Arnie’s personal laptop is stolen while he’s on the train to work. He makes a claim for the $3,800 he paid for it using his card back in August.
While Arnie is certainly having an unlucky year, he has been fortunate enough to be able to claim back $7,500 out of the $8,000 paid. He paid nothing for the cover as purchase protection insurance was included on his card as a complimentary perk, and there was no excess to pay.
In order to make a claim, you need to understand what’s expected of you. Reading the PDS will give you a good head-start on that, but you can also contact your insurance provider if you need to get more detail.
In general, your claim will need to fit within the boundaries of what is claimable under your policy. You will also need to make the claim within a certain period after the event occurs. When making the claim, you will have to provide relevant documentation as proof – and depending on your policy, you may need to pay an excess.
Is It Worthwhile?
The value of purchase protection to you will really depend on whether you use it. This will obviously be influenced by whether or not something happens that causes you to need to make a claim, but it will also be affected by your knowledge of the cover your policy offers.
As a complimentary perk, purchase protection is often underused – but that doesn’t make it any less valuable. The key to making it work for you is to first understand how it works, then to compare card options to find the policy that provides cover that’s valuable to you.
Purchase protection usually goes hand-in-hand with other complimentary covers such as extended warranty cover, price protection guarantee and refund protection insurance, which means you may find value in these covers as a package, despite the fact that you don’t need to use each individual cover that often.
Credit Cards with Purchase Protection - Frequently Asked Questions
As you compare cards, take time to consider each of the following factors:
Claim Requirements: Find out how much time you have to make a claim after losing or damaging an item, and check what documentation is required to make a claim.
Claim Limits: Pay close attention to the period of time after purchase in which you can make a claim. Also check for claim limits on individual items and annual caps. If you travel overseas frequently, find out if you can make claims on items purchased overseas and events that occur overseas.
Annual Fee: You will usually find cards offering perks such as purchase protection have a higher annual fee than those that don’t. Make sure the annual fee is worth paying for all the features you are getting in return.
Purchase Rate: With a higher purchase rate, cards with extras such as purchase protection should always be paid off each month before interest starts accruing. If you’re not able to do that, you may want to consider a card with fewer extras and a lower purchase rate.
Rewards & Features: Perks such as purchase protection are typically offered alongside other features. If making the most of other features is important to you, choose a card that provides extras that are of value to you.
When making a claim, you will need to contact the insurance company direct, either by phone or by email. The details of how to make a claim will be included in your PDS, along with any documentation you may need to provide.