How Do Credit Card Protection Programs Work? A Thorough Guide
Credit cards have become quite the staple in the current payment ecosystem. According to forecasts by Insider Intelligence, the volume of credit card transactions in the U.S. is expected to exceed $3.2 trillion by 2024.
With the increasing economic relevance of these cards, banks and card companies have started providing various credit card protection plans to attract more customers.
These protections are usually part of the cards’ perks and benefits packages but can also be available as add-on services. An excellent example of add-on protection is the credit card payment protection plan, which may safeguard your credit standing if you cannot pay your card debt due to financial hardships.
In this article, you will get a comprehensive look at various types of credit card protection programs and their relevance. We will explain how they work and help you evaluate the available protections on your current card.
What Is a Credit Card Protection Program?
A credit card protection program—also called credit card insurance or protection plan—aims to safeguard you against different risks you may encounter while using a credit card, such as:
- Loss or theft of a card
- Fraudulent transactions
- Undesirable or accidental purchases
- Emergencies like unemployment or disability that impair your ability to repay credit card debt
By default, all U.S. consumer credit cards include fraud protection thanks to the federal Fair Credit Billing Act. The law states that if a consumer card is used for unauthorized transactions by a malicious party, your liability will not exceed $50.
Regardless, you’re typically not required to pay anything, as most card issuers offer a zero liability cover[1] for all fraudulent transactions as a general courtesy to their customers.
Besides the standard fraud protection, your credit card provider may offer other protection plans to safeguard you in different scenarios, either free of charge or for an additional fee. Some of the most common protection programs are:
- Return protection
- Purchase protection
- Price protection
- Travel insurance
- Rental car insurance
- Payment protection
Let’s unveil what these protections entail and what their conditions are.
Return Protection
A credit card return protection plan is usually an added perk that:
- Extends the return window of a purchased item
- Allows you to return items that have no seller-sponsored return policy
Depending on your card provider, you can claim the benefit by submitting documents like the purchase receipt and a copy of the store’s return policy. You may have to follow specific shipping rules if the merchant does not accept returns.
Check out some cards that offer return protection (current as of August 2023):
| Credit Card | Return Window | Maximum Amount Per Claim |
|---|---|---|
| Mastercard® [All types] |
60 days | $250 |
| Certain Amex® cards | 90 days |
$300 |
| Visa Signature® cards | 90 days |
$250 |
| Visa Infinite® cards | 90 days |
$300 |
Purchase Protection
Credit card purchase protection works like insurance for eligible products against theft or accidental damage. It is available for a limited time, generally 90–120 days. The program enables you to get a purchased item repaired, replaced, or reimbursed at no cost.
Purchase protection can be available for in-store as well as online credit card purchases. Still, the process of registering a claim depends on your specific situation and the terms of your credit card issuer. For example, if your item was stolen, you may have to file a police report to qualify for the protection.
Many credit cards from popular networks like Visa® and Mastercard come with built-in purchase protection[2], but the coverage length and limit may vary.
Price Protection
Price protection serves to shield you from significant price drops. For example, let’s say you purchase a laptop at $700 with your credit card and discover its price has dropped to $650 after a week. In this case, you may be able to claim the difference of $50 because of the price protection.
This is a less common benefit that only a few credit cards offer—here are a few examples:
| Credit Card | Maximum Claim |
|---|---|
| Capital One Walmart Rewards Mastercard | $250 per item (up to $1,000 per year) |
| Wells Fargo Visa Signature Card | $250 per item (up to $1,000 per year) |
| UBS Visa Infinite Card | $500 per item (up to $1,500 per year) |
Travel Insurance
Credit cards with travel insurance protect you against unpredictable circumstances like trip cancellations, baggage loss, and flight delays. The range of benefits varies from one provider to the next. Chase offers noteworthy travel insurance perks among the major business credit card issuers[3] (valid as of August 2023, at the time of writing this article).
Rental Car Insurance
Rental car insurance is another travel-related benefit that covers you in case your rental car is stolen or damaged. It’s usually a type of supplemental insurance that provides additional coverage after your primary auto insurance. Make sure to read the fine print of the credit card terms to have a clear idea of the extent of the coverage.
Payment Protection Plan
A credit card payment protection plan—also called credit insurance, credit shield, or debt protection—allows you to put a pause on your monthly card payments for a limited period.
The main goal of the plan is to offer coverage in case of hardships or emergencies like disability, unemployment, or critical illness, which may make keeping up with regular credit card payments challenging. You can resume the payments once the predicament is over.
Payment protection helps you remain in good financial standing with credit reporting authorities despite the temporary setback.
While payment protection plans sound like a lifesaver, they are relatively rare and far more complicated than the other credit card protections available. Plus, the cost of this insurance may outweigh the benefits, so it’s crucial to determine whether it is worth paying for.
Credit Card Payment Protection Plans—FAQs
A credit card payment protection plan is typically pricey. Whether or not it is the right choice for you depends on factors like the amount of debt you have, plan costs, and your financial situation.
Review some frequently asked questions below for more details about this type of protection.
What Are the Charges for a Credit Card Payment Protection Plan?
You generally have to pay a fixed monthly or annual premium to your card issuer to take advantage of payment protection benefits, provided your card offers them.
The cost of the premium depends on your average credit card balance. In general, you have to pay 10% or more of your annual average card debt[4] to access the benefit.
Which Credit Cards Have a Payment Protection Plan?
You won’t find many payment protection plans on the market because a lot of them have been discontinued in the past decade. They were mainly criticized for their high fees and linked to several consumer complaints[5].
One of the most notable active payment protection plans is offered by Discover®(current as of August 2023). Called Discover Payment Protection, the program allows existing cardmembers to pause minimum monthly payments for the following reasons:
You can suspend payments for up to three and 24 months, respectively, for qualifying short-term and long-term events, and you won’t have to pay credit card interest or late fees during the paused period. You won’t have to pay credit card interest or late fees during the paused period. Review Discover’s terms and conditions for information on exclusions and limits.
If you’re unsure about the payment protection benefit on your credit card or cannot find relevant information online, it’s best to reach out to your provider directly.
How To Claim Payment Protection on Credit Cards
The issuer dictates the process of claiming payment protection for eligible credit cards. Some issuers require submitting an application to cancel your future payments, while others may ask for extensive paperwork, such as proof of disability or involuntary unemployment.
Are Credit Card Payment Protection Plans Worth It?
The primary benefit of payment protection plans is to give you a sense of financial stability even when life throws curveballs at you. As ideal as it sounds, there are certain downsides you should consider before investing in such a plan.
Common considerations include:
- High maintenance costs—If you keep paying for payment protection but never use it, you might begin to feel like you’re wasting money. According to a 2019 Consumer Financial Protection Bureau (CFPB) complaint, one customer noted that they were dissatisfied after being charged more than $5,000 over the last 14 years as a fee for Debt Protection, a service they never used.
- Too many exclusions and conditions—Payment protection programs typically have several caveats that may disqualify you from the benefit. For example, your card provider may refuse to approve your application if you’re behind on your previous payment.
- Better alternatives—You may find alternatives like life and disability insurance a better fit in terms of coverage, especially if your concerns are health-related.
Because of the unpredictable nature of payment protection plans, some experts recommend building an emergency fund[5] for rainy days instead. In the event of financial hardship, several other remedies exist, such as getting a balance transfer credit card or a debt consolidation loan.
Another viable solution to avoid credit card debt issues is to use debit cards whenever possible. When paying with a debit card, you’re using funds you already have, preventing additional debt accumulation.
Are Card Protection Methods Enough To Safeguard You?
While credit and, to an extent, debit cards come with built-in protection such as EMV chips and PINs, they leave you vulnerable to threats, especially online.
Whenever you make a purchase or pay for a subscription online, you’re exposing details like your card number and CVV code to the vendor. If the vendor website suffers from a security breach, your sensitive card information could easily fall into the wrong hands—and no card protection plan can prevent this from happening.
If you want to conduct safe online transactions, start protecting your card data with virtual cards.
A virtual card has a uniquely generated 16-digit number, expiration date, and security code connected to a funding source, such as a debit card or bank account. It can be used for completing payments without revealing your true card information. In case of a security breach, the thief can only access your virtual card—your real card or bank information will remain shielded.
A Shield Worth Having—Privacy Virtual Cards
If you want to secure your online payments and minimize the chances of card theft, turn to Privacy. The Better Business Bureau®-accredited company offers one of the most reliable virtual card services in the U.S.
With Privacy, your actual bank and card information is masked by your virtual card number, giving you an additional layer of safety online. The platform offers two types of virtual cards:
- Merchant-Locked Card—It locks to a specific vendor, ensuring the card cannot be used anywhere else. This minimizes the risk of the card being misused by a potential hacker.
- Single-Use Card—Single-Use Privacy Cards close automatically after each transaction, rendering them useless to potential hackers.
Privacy Cards can be closed, paused, and unpaused anytime, giving you greater control over subscriptions and recurring payments. Close or pause your virtual card to prevent a merchant from charging you more than you’ve agreed to, and Privacy will decline any further payment requests on the card.
This feature is also useful for dealing with subscriptions-based merchants. Privacy will decline the payment from the merchant, however, you’ll need to reach out to the merchant to ensure the subscription is canceled on their end.
Security and Convenience Perks of Privacy Cards
Privacy is not only about masking your financial information. You will also get numerous features for controlling your online transactions.
Check out some of the top benefits of using Privacy Cards:
- Desktop browser extension for faster checkout—You don’t have to look for your purse or wallet every time you transact online. Privacy’s browser extensions for Chrome, Firefox, Edge, and Safari make checkouts fast and seamless by autofilling your virtual card data on the checkout screen.
- Mobile browser extension—The same features that make checkout quick and seamless by autofilling cards on the web extension are available for iOS Safari.
- Customizable spending limits—You can customize your Privacy Cards to have a fixed monthly, annual, or total spending limit and protect yourself from potential merchant overcharges. The limit is also useful if you want to share the card with a close family member, as you remain in full control of the card’s settings.
- Mobile access—Privacy is available as an Android or iOS app, allowing you to create and manage virtual cards on the go and shop comfortably wherever you are.
- Real-time alerts—Privacy sends email or push (in-app) notifications every time your virtual card is used or declined, enabling you to track your virtual card activity in real time.
You can also take advantage of Privacy’s free integration with 1Password, an all-in-one password manager. The integration will help you store and manage your passwords and financial information in one secure online vault.
Request a Privacy Card in Three Easy Steps
Privacy Cards are available to most U.S. residents over 18 with a checking account or debit card. Here are the steps you need to take to receive a virtual card with Privacy:
- Register your account
- Enter the mandated Know-Your-Customer (KYC) information
- Link to your checking account or debit card
- Request your first Privacy Card
Once your account is successfully linked, you can request one or more customized Privacy Cards at your convenience. You can currently generate up to 12 new cards per month on the basic plan. If you opt for a paid plan, you can access other benefits, like cashback, up to 60 Privacy Cards every month, and priority support.
Watch Out for Credit Card Protection Scams
Credit card protection plans, free or paid, cover a wide spectrum of incidents, which makes them attractive to customers. Unfortunately, scammers see the situation as an opportunity to orchestrate fraud.
Here are three credit card protection scams you should particularly watch out for:
- Callers offering “card protection”—Scammers may call you to sell “protection” against credit card fraud, although such benefits are already offered by every card issuer.
- Shady text alerts—Another common scheme is sending texts about a “security issue” in your account, which can apparently be fixed if you share your sensitive card data (like your CVV code and PIN) with the sender. Sharing card information over texts or emails is never wise. If you’re worried about the security of your account, it’s best to contact your card issuer.
- Third-party insurance offers—If you’re looking for specific credit card protection, it should be provided by your card issuer. Do not engage with third parties offering purchase or payment protection, as they can be unreliable.
References
[1] Chauncey Crail. Forbes. https://www.forbes.com/advisor/credit-cards/0-fraud-liability/, May 22, 2023
[2] Ben Luthi. Nerdwallet. https://www.nerdwallet.com/article/credit-cards/credit-card-purchase-protection, August 8, 2023
[3] Chase Credit Cards. https://creditcards.chase.com/business-credit-cards, sourced August 2023
[4] Poonkulali Thangavelu. Creditcards.com. https://www.creditcards.com/credit-management/credit-card-protection-insurance/, November 2, 2022
[5] Emily Starbuck Gerson. Experian. https://www.experian.com/blogs/ask-experian/what-is-a-payment-protection-plan/, June 19, 2020
