Travel insurance can provide peace of mind as well as financial protection if your vacation or business trip is canceled, especially in these days of pandemics and widespread logistical disruptions. But you have to do your homework and understand the details to know if the travel insurance you’re considering will offer the coverage your trip requires.
The basics of travel insurance
Before diving into the types of travel insurance available, you should understand one basic principle: Most insurance plans only cover prepaid, non-refundable expenses. Example: you’re on a cruise and decide on the spur of the moment to book an island excursion. If that excursion gets cancelled, you likely wouldn’t be covered since it was not pre-paid before you set sail.
Megan Freedman, executive director of the US Travel Insurance Association, said in an interview: “The most common travel insurance is trip cancellation, which is actually a package – or comprehensive plan including three types of coverage: financial, medical, and assistance.”
- “Financial” helps protect against losing nonrefundable travel expenses such as airline tickets, cruises, and baggage loss. If your trip is delayed – by weather, for example – it can also help with unexpected travel expenses such as hotel and meals.
- “Medical” helps reimburse emergency room and hospital costs, and provides medical evacuation if you’re seriously sick or injured during your trip. The cost of medical evacuation can easily soar past $50,000, depending on the location and conditions (more below on health insurance coverage).
- “Assistance” connects policyholders with needed services, coordinates medical care, and finds emergency legal help, accommodations, and other important resources in case of emergency, from illness to a stolen passport.
Some valid reasons to cancel a trip include:
- A licensed physician deems you or a traveling companion unfit to travel due to unexpected illness or injury (pre-existing medical conditions may be an exclusion).
- Hospitalization or death of a non-traveling family member.
- Weather or carrier related issues.
- Unforeseen natural disasters at home or the destination.
- Legal obligation, including jury duty or being called to appear as a witness.
But these are situations that are out of your control. What if you decide at the last minute you’d rather just stay home? That’s where a Cancel For Any Reason (CFAR) option comes into play. This type of travel insurance coverage is more expensive and comes with a few stipulations, all of which are plan-dependent:
- May only be available for purchase within 10-30 days of initial trip payment.
- You’ll have to insure 100 percent of your pre-paid, non-refundable trip cost.
- You must cancel with the travel supplier 48 or 72 hours before departure date.
- You may only be covered for 50-75 percent of total costs.
The other question travelers may ask is, how much does this peace of mind cost? Again, it fluctuates per policy and itinerary, but Freedman said “to budget between 4 and 8 percent of the total trip cost for insurance.”
Smooth sailing or rough waters?
Some trips have more inherent risk than others, for instance travel to a part of the world where terrorism is a likely possibility or a location prone to natural disaster. Trips to exotic destinations and cruises tend to top the list of vacations for which Americans tend to purchase travel insurance.
But Freedman offers a different way to think about it; “A traveler might want to consider the potential out of pocket expenses in the event that something occurs. For example – if you had to cut your trip short due to your illness or that of a family member, could you afford the cost of another plane ticket? If you had to be medically evacuated or pay medical bills out of pocket, could you afford those costs? If your flight is delayed and you have to book a hotel room for a night, or your luggage is lost and you need to replace essentials, are those costs you could cover out of pocket?”
These are strong arguments for travel insurance, but it’s wise to consider your personal financial situation and comfort level before committing to a policy. (Learn more: The value of a sound financial strategy)
Indeed, for an excursion requiring a major expenditure ― like a safari or cross-continent trek ― some people opt to consult a financial professional about the implications of cancellation and the wisdom and options for travel insurance. (Find a MassMutual financial professional here)
What about your existing insurance plans?
You have health insurance, so are you covered out of the country? Coverage overseas varies widely. So ask your health insurance carrier what’s covered in your particular policy, where is it covered and how are medical evacuations handled? In addition, the Centers for Disease Control and Prevention encourages travelers to ask what's excluded from their policy, such as risky activities.
It also is advisable to check the terms and conditions of your auto insurance. While your auto insurance policy may provide coverage if you have an accident in a rental, that’s usually only applicable in the United States and Canada, with some coverage in Mexico.
Finding the best travel insurance plan
From whom you purchase your plan is almost as important as the plan itself. While travel providers often offer coverage, you may want to consider a third-party such as travel agents, insurance providers, travel insurance specialists, or online aggregators. The issue with buying directly from the travel provider is if you purchase from a cruise line, for instance, and that company becomes insolvent, you may have trouble getting reimbursed for your tickets.
Another option is to check with your credit card issuer, because some cards, especially higher-tier reward cards, offer protection as a cardholder benefit. But no matter where you obtain travel insurance from, consider a plan with 24/7 assistance, with contact information accessible from your destination.
Things to keep in mind
- Know the place where you’re traveling. Check U.S. Embassy warnings, read local news online before you go, and check the historic weather.
- When in Rome: blend in as much as possible so you’re not as visible a target.
- If you pay for a trip with reward miles, travel insurance generally will not cover losses. However, non-refundable fees and taxes are covered, and any money you have to use to buy additional miles to reach an award level is covered.
- Event tickets purchased as part of a vacation package may be covered, such as sporting events like the World Cup or Olympics. Read the details carefully as there may be limitations on coverage depending on where you purchased tickets.
- Alcohol exclusion: your insurer may deny a claim if alcohol was involved at time of loss, accident or injury.
- While acts of terror are generally covered, civil unrest is not, so even if the State Department issues a travel warning, you’re not entitled to reimbursement if the trip is canceled. This is a situation where a Cancel for Any Reason travel insurance policy may be a safer bet.
- Airline or other strike: if you purchased tickets and insurance when the strike was an “unforeseen event” you could likely be reimbursed if the strike delays your travel for the threshold of delay reimbursement. If the strike has been reported in the news, it’s a “known peril” and coverage will likely be denied.
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This article was first published in September, 2016. It has been updated.