Some travelers have always considered travel insurance an important part of trip planning, and recent industry woes have convinced others to take a hard look. Travel agents, cruiselines, tour operators, and vacation rental agencies typically urge travel insurance; some automatically include it as an “opt out” extra on any deal they make.
Consumers, on the other hand, are often wary about insurance as possible profit-puffing rather than a sound value. Who’s right? In general, both sides have their points: Insurance is invaluable for some trips, extraneous for others. The most important travel insurance options are trip-cancellation/interruption (TCI) and medical/emergency evacuation (TMI). Most other coverages either (1) duplicate insurance most consumers already have, (2) cover extremely unlikely risks, or (3) address trivial risks.
The case for TCI is straightforward – especially the cancellation component. Cruises, tour packages, vacation rentals, and some other big-ticket travel purchases typically require hefty deposits or even full prepayment, often months in advance, and many of those advance payments incur substantial cancellation penalties or even total forfeiture, especially when cancellation is close to the departure or occupancy date. Consumers consider TCI any time they face cancellation penalties or deposit losses that’s larger than they could comfortably walk away from if they were forced to cancel.
The “interruption” component of TCI covers additional expenses travelers might incur after they’ve started their trips and then find they have to return early – notably the extra costs of changing return air tickets and loss of unused prepaid hotel accommodations and other tour components.
Regardless of how heart-rending the stories might be, suppliers generally – and increasingly – ignore pleas from consumers to waive penalties and forfeitures. These days, even the best excuse for cancellation or interruption seldom elicits a refund. Suppliers give ample warning of cancellation penalties at the time of booking, and travelers who ignore those warnings voluntary gamble that nothing will happen between the time they buy and the time they travel.
Covered reasons. TCI generally reimburses what travelers can’t recover from suppliers when they have to cancel or interrupt a trip for a “covered reason”.
*Covered reasons typically include illness or accident to a traveler, a traveling companion, or a close family member who remains at home. They also include a laundry list of other possibilities, such as hurricanes or other natural problems in a destination area, getting called to jury or military duty, having a traveler’s primary residence burn down, or even missing a departure because of a traffic accident on the way to the airport/cruiseport. There are some differences among insurance companies about both the specifics of covered cancellation reasons and the qualifying relationships of travel companions or those who remain at home.
*Most TCI does not cover cancellation for business reasons, although a few newer ones do provide at least partial recovery for any reason, including business.
Beyond the usual risks – sickness, accident, and such – protection against supplier default becomes increasingly important in today’s tricky travel economy. Financial default of a big airline, tour operator, or cruiseline is no longer a vague possibility; it’s a real risk. Most TCI policies cover supplier default, although details differ. Because airlines almost always offer either a refund or rebooking in the event of a serious delay, TCI would not pay on a cancelled airline ticket. However, TCI would pay cancellation penalties if the delay resulted in missing a cruise, tour departure, or arrival at a vacation rental. Not covered. Although nominally similar, some TCI programs are more restrictive than others.
TCI is almost always secondary, meaning it pays only what travelers can’t first recover from the suppliers or other sources. That means no refunds for cancelled air tickets that can be partially or fully refunded. And it means no refunds for payments made on credit cards, for which travelers can get a chargeback.
Most TCI policies exclude “pre-existing medical conditions”, meaning that they won’t reimburse travelers who cancel because of a medical condition for which they (or whoever’s condition required the cancellation) saw a doctor or took medication within a set period before departure – usually three to six months. However, many issuers waive that exclusion for travelers who buy the insurance shortly after making the initial prepayment – usually one to two weeks, depending on the company.
TCI policies generally do not pay off in the event of financial failure of the supplier or agency that sells the policy.
TCI is typically combined with other forms of travel insurance in a “bundled” policy, but TCI is the most important component of that bundle. Bundled policy prices vary depending on (1) the dollar amount of coverage purchased, (2) what other components are in the bundle, (3) the duration of the trip, (4) the time spread between purchase date and departure date, and (5) the age(s) of the insured traveler(s). Prices typically start at around 5% of trip cost but can increase substantially, reaching levels of 20% or more for some senior travelers.
True TCI vs. waiver
Cancellation protection comes in two basic forms, which vary significantly in coverage (and price):
*TCI from an independent insurance company is “true” insurance. It pays off in cash for any prepayments travelers can’t recover. And it covers them through their entire trip – from the time they make their prepayments until they return home. Some “insurance” sold by cruiselines or tour operators is a “cancellation waiver” rather than true insurance: For a fee, the cruiseline or tour operator waives its right to collect cancellation penalties. However, many waivers pay off only in credit toward future travel rather than cash, some of their coverages stop upon departure (or even a day before departure), and they typically do not include interruption benefits. Waivers may also have tougher requirements for pre-existing medical conditions than true insurance. And they obviously do not cover supplier default.
Waivers are usually less expensive than true insurance – and usually provide a lot less protection. For the most part, waivers are most attractive to high-age senior travelers for whom true TCI can become extremely expensive.
Some travelers need supplementary medical insurance. Many year-round health/medical programs, including HMOs, cover travelers while they’re traveling, even outside the US. Some of those who are teaching healthcare in third world countries get to take advantage of special programs with Medicare. But others don’t, and even when they do, they may impose a stiff deductible. Medicare never covers foreign travel, and the foreign-travel benefits of Medicare supplement policies “C” and higher are limited to 80% of emergency medical treatment costs, with a $250 deductible. Travelers whose regular medical coverage is not sufficiently robust to cover them fully, while traveling, typically consider additional medical coverage. It typically covers two financial risks:
*Emergency transportation to an adequate medical facility in the event of a serious illness or accident.
Some travelers buy separate TMI even when their regular health programs nominally cover travel. The reason is that many–perhaps most–regular policies don’t pay up front for foreign medical services. Instead, travelers must pay on the spot, often in cash, then apply for reimbursement after they return home. Those up-front payments could prove difficult, maxing out credit cards or requiring long-distance negotiations with home banks for wire transfers of funds. A TMI policy that offers primary foreign coverage eliminates those problems. Furthermore, insurance companies may require travelers to provide very detailed information such as NDC numbers and quantities of each ingredient that make up the prescription as well as NABP numbers for pharmacists on prescription drug reimbursement forms.
Although many industrialized countries provide comprehensive, government-funded medical insurance to their citizens, only a few offer anything to tourist visitors. Americans visiting the UK can get no-charge emergency treatment for sickness or accident from hospital emergency rooms, but they must pay for hospitalization and some follow-up care. In most other countries, tourists pay. Many travelers also consider emergency evacuation (medevac). Most regular TMI policies include some medevac coverage, but it might not be enough in a major emergency. Travelers can buy insurance to cover even the most expensive emergency evacuation from the site of an accident or illness to a suitable hospital. Some policies limit evacuation to the nearest hospital qualified to treat the problem; others return travelers back to the US when requested. Insurance promotional materials are full of horror stories about travelers who had to charter helicopters to get them out of a bad situation or private jets to get them home, often at costs ranging up to $100,000.
Most travelers buy medical insurance by the trip, and most of those buy it along with TCI as part of a comprehensive package policy. But travelers who don’t need TCI can buy it separately. Frequent travelers – especially business travelers often assigned overseas – can buy full-time policies. Typically, that means by the year, but some policies are offered for shorter periods. As with by-the-trip policies, prices depend on age and travel patterns.
Delay, lost baggage, and such
Many travel insurance policies include coverages for minor risks such as extended airline delay, lost or delayed baggage, and such. Typical benefits include $100 to $500 a day to cover personal expenses when checked baggage is delayed, up to $2500 for baggage damaged or lost 30 days or more, and $500 to $1000 to cover accommodations and other expenses in the event of an extended delay or missed connection. Some companies also offer rental-car collision insurance as an optional extra.
Most such coverages are secondary: That means they pay only whatever travelers can’t first recover through other sources. In the case of baggage loss, the insurance pays only what travelers can’t first recover from the airline or from their homeowners insurance.
Minor coverages are typically included in bundled policies, especially the more expensive “gold plated” policies. However, travelers can add them as options to some less expensive policies.
Protecting money, but not the trip
All travel insurance is subject to one basic rule. It guarantees travelers money, not their trips. In a major airline delay or cancellation, TCI would cover the nonrefundable component of the original ticket plus any penalties due because of late arrival at a destination, and delay insurance would cover the out-of-pocket costs of accommodations and meals. But TCI would not buy a replacement ticket or a new destination accommodation – if the new ticket or hotel costs a lot more than the original, that’s the traveler’s problem.
The basic rule of travel (or any other) insurance is to buy the minimum amount needed and the least expensive policy that meets those needs.
TCI is a good bet for any travelers required to make large up-front payments for travel services that entail significant cancellation penalties. That typically includes cruises, tours, and vacation rentals.
*Travelers concerned about missing a cruise, tour, or rental commitment because of airline failure need a policy that specifically includes airline failure.
*TCI is not necessary, however, just to protect against just an airline failure, with no other big up-front costs. Travelers who buy tickets with credit cards enjoy no-cost chargeback protection.
*Early purchase, within a week or so of the first deposit, is essential. Full “covered reason” and supplier default coverages are contingent on early purchase.
*Policies that cover cancellation for any reason provide a big advantage for travelers who work in jobs subject to unexpected demands.
*Waivers or insurance that travel suppliers sell for their own tours generally provide weaker protection than third-party policies from independent insurance companies. But rates on most third-party policies increase sharply with age, so senior travelers may be better off with a supplier,s program if it’s not age-rated.
*Although most TCI policies cover supplier default, a few do so only partially and some don’t cover it at all. According to online information, USA Aissist does not cover supplier default; some Access America, CSA, and Travel Insurance Services policies cover it and some do not. Access America coverage applies only to a specific “white list” of companies, and Travelex covers only “unforeseen” failures, a limitation that could potentially cause arguments.
TMI is designed for travelers with limited year-round medical insurance and seniors dependent on Medicare:
*Even if it costs more, primary TMI coverage is preferable to secondary
*Early purchase is essential to waive the exemption for pre-existing conditions.
*Following the policy’s procedures on finding a doctor, entering a hospital, and such precisely is essential. Travelers who make their own arrangements often don’t get reimbursed at all.
“Gold plated” bundled policies that cover a lot of other circumstances — delays, delayed baggage, personal property, and such – are generally an overkill. Some duplicate coverages travelers already enjoy through their regular homeowner policies; others cover financial risks that are marginal and usually don’t justify the extra cost. If they come with the bundle, fine, but paying extra is probably not a good idea.