What Is Chargeback Insurance?

If you have a credit card or own a business, there is a good chance that you have heard of chargeback insurance, but do you really know the ins and outs of the policy? To start off, chargeback insurance is a policy that protects a seller or a business that accepts credit cards, as a form of payment. The policy will protect the merchant against a fraudulent credit card charge. Sure, this sounds like a really good policy, but once you read between the lines you start to see a few cracks here and there. Below you will learn more about how this policy actually works.


How Does Chargeback Insurance Work


When it comes right down to it, chargeback insurance relies on fraud filters. A fraud filter will flag transactions that are most likely to result in a chargeback. For instance, if a single customer purchases ten flat screen TVs, the fraud filter would more than likely flag this up transaction. When a fraud filter actually flags a transaction like this, the merchant is presented with 3 different options.


  • The merchant may cancel the transactions, before it goes through
  • The merchant can contact the customer to verify the charges. If all checks out, then the transaction can be processed
  • The merchant can ignore the filter and proceed with the order processing


Now, if the merchant has chargeback insurance, there will be a fourth option. The merchant can review the data within the fraud filter and go forward in processing the transaction, if the data seems to check out. The vendor should now know that the insurance company would reimburse them, if any chargebacks actually occur.


As of now the policy still seems pretty solid, right? What if you suffer from a high rate of chargebacks?


What the Insurance Will Not Cover


When you get right down to it, chargeback insurance can be limited. For instance, it does not cover “undelivered purchases” and it also does not cover products that are damaged. The insurance companies can also change a chargeback ratio that a company sustains at any time. The vendor might be covered for lost profits, but the policy cannot protect against the overall percentage of chargebacks received.




At the end of the day, there is no way to reverse what negative affects a chargeback can have on a business. If your chargeback rate exceeds the allotted percentage allowed by the insurance company, you are going to be in danger of losing money.