How to Buy Travel Insurance: What It Covers, When You Need It

By: Wendy Perrin
travel • insurance • news

Travel Insurance

CORONAVIRUS UPDATE:  Each travel insurance provider is handling the unfolding situation somewhat differently. Some will reimburse travelers if they contract the novel coronavirus (COVID-19) prior to or during their trip, or if they are quarantined and unable to travel; others won’t.  Most travel insurance policies will not reimburse travelers who cancel their trip because of fear of contracting the virus or because of government travel warnings/advisories. If you’re planning a trip now and want the option to cancel under any circumstance, you’ll need to purchase additional “Cancel For Any Reason” (CFAR) coverage.

Travel insurance can be confusing—which is why Wendy has received countless questions about it from readers. So we’ve created this primer that lays out the basics of travel insurance, including when you need it—and when you don’t.

| What is travel insurance anyway?

Essentially, travel insurance serves two purposes, both financial. The first is to protect the investment you’ve already made—the cost of your trip—in the event that you need to cancel. The second is to cover future potential costs because of unforeseen events—for example, the cost of medical evacuation, should you get injured during your trip.

| What does travel insurance cover?

Travel insurance policies cover some or all of the following (“comprehensive” policies cover most or all of these situations):

  • Trip cancellation or interruption
  • Medical expenses, and sometimes evacuation (transportation to an appropriate medical facility)
  • Expenses related to a trip delay and lost, stolen, damaged, or delayed baggage
  • A lump-sum payment if you’re injured or killed while traveling
  • Emergency assistance
  • Financial default of the travel supplier

A policy kicks in only if your situation fits within its specific conditions (those are the pages of fine print at the back of every policy). You can’t, for instance, get your money back if you decide to cancel because your cousin dies; that’s because most policies cover cancellation due to the death of only certain family members (excluding cousins). Another example: You can’t get your medical bills paid if an ongoing heart issue requires attention while you’re traveling—unless you’ve bought a policy that covers pre-existing medical conditions.

Here are three examples of how travel insurance can help. These are scenarios that a traveler might run into—and ways in which the right travel insurance policy could protect the traveler in each scenario.  Remember that every policy’s benefits are different:

Beth is headed to the Caribbean during hurricane season, since she knows that prices are lower at that time of year and that the chance of a storm hitting any particular island is low. But a week before she leaves, Hurricane Peter wreaks havoc at her beachfront resort.
Since she purchased an insurance policy with trip-cancellation coverage before the storm was named and her hotel is now uninhabitable, she can cancel the trip and get all of her money back.

Halfway through a hiking trip in the Alps, Joe slips and falls, breaking his ankle.
His travel insurance policy has a medical expense limit of $10,000, so it covers some but not all of his medical bills. Because he can’t continue with his trip, his trip-interruption benefit reimburses him for the unused portion of his prepaid expenses.

While Amy is walking from the train station to her hotel, a thief steals her luggage.
Her insurance covers the value of the items in her luggage, up to her benefit limit of $750. Too bad she didn’t leave that diamond necklace at home, though; her policy will only reimburse up to $500 total for jewelry and electronics.

| Do I really need travel insurance?

You might.  Some—but not all—medical plans, homeowners’ or renters’ insurance policies, and credit cards offer benefits to travelers. But Medicare, for instance, doesn’t cover members when they are overseas (though some Medigap plans do), and most health plans won’t cover evacuation (meaning, transportation to an adequate medical facility), which can be expensive if you’re somewhere remote. Check with your insurers to see what’s included.

Some premium credit cards include a level of protection. This coverage probably isn’t alone worth the card’s annual fee, but if you already have such a card, you should know what benefits it offers so that you don’t pay for redundant coverage. For example, Chase Sapphire Preferred—one of Wendy’s favorite credit cards for travelers—has some good insurance benefits, but with set limits (so, for instance, you can get back only up to $10,000 per traveler if you have to cancel a trip you paid for with the card—even if the trip cost you $15,000 per person).

Some travel firms and tour operators also include certain insurance coverage in all of their trips. Don’t waste your money buying coverage that’s already built into the cost of your trip. However, don’t assume that this coverage is comprehensive; depending on your circumstances, you might want to buy an additional policy.

| How much does travel insurance cost?

It costs about four to eight percent of your total trip cost, according to the U.S. Travel Insurance Association. So if you and your spouse are spending $20,000 total on an African safari, expect to pay $400 to $800 per person for travel insurance.

Each premium is calculated based on the length and cost of the trip, where you’re going, and how old you are. For travelers above age 50, policies get significantly more expensive, while children can often be added to a parent’s plan for free:  Travelex allows you to add any children under 18 to a parent or grandparents’ plan at no additional cost, while most Travel Guard plans include one child under 18 for every paying adult.

| At what point should I buy travel insurance?

Purchase your policy as soon as you put down a deposit toward your trip.  That’s because certain desirable benefits (e.g., coverage for cancellation because of pre-existing medical conditions and coverage for financial default of the travel supplier) may kick in only if you buy your policy within 14 days or so of your initial trip payment.  Cover whatever amount is nonrefundable; you can adjust your policy with each subsequent payment for your trip.

| What is third-party insurance?

Some travel companies—cruise lines, tour operators, and the like—sell their own insurance or “protection” policies, whereas third-party insurance is sold by someone other than the travel company that is operating your trip. Third-party policies are usually a better choice: They pay you back in cash rather than trip credits, they can protect you in case the travel company goes out of business, and you can choose the plan with the coverage that best fits your specific circumstances.

| Should I purchase through a specific insurer?

Some travel agents, tour companies, and outfitters have relationships with a particular insurance provider. They might push you to buy a certain type of insurance because they’ll earn a commission; on the other hand, their relationship with that insurer could benefit you if you have to file a claim. Wendy has seen many cases where Trusted Travel Experts on her WOW List, thanks to their relationship with a particular insurer, have been able to act as advocates for their clients and get their claims paid.

| Should I cover the cost of my flights too?

That depends. If you have to cancel your trip, you can usually put the cost of any unused airline tickets toward a future flight, minus a change fee. Calculate how much your premium will increase if you insure your flights; if the difference is less than the airline’s change fee, it’s worth insuring the flights. (You might also want to insure flights on any local carrier that you aren’t likely to fly with again—in which case a credit toward future travel would be worthless.)

| What does primary or secondary plans mean?

“Primary” means that the plan pays any bills first, without having to go through your home health insurance provider; “secondary” means the plan will only cover whatever you owe after you’ve filed a claim with your health insurance provider. You’ll typically get a bit more coverage per dollar with a secondary plan—but you’ll have to deal with more paperwork if you file a claim.

| What is covered if I have a medical condition?

Not unless you pay for a waiver that covers pre-existing medical conditions. This coverage—which will add to your premium—is only available if you purchase insurance soon after making the first payment on your trip (generally within 14 to 21 days of that initial deposit). You also usually have to insure the entire nonrefundable cost of your trip, including flights. Without coverage for pre-existing conditions, you’re on the hook for any expenses related to a condition that wasn’t medically stable at the time you booked.

| What if I'm hurt during an adventure activity?

Most policies won’t cover injuries you receive while taking part in certain “hazardous activities”—a category that can include everything from skydiving and rock climbing to scuba diving and heli-skiing. Some plans will allow you to pay a higher premium to cover these activities. (Dive Accident Insurance from the Divers Alert Network, for instance, covers most bills related to scuba-diving accidents.)

| Will insurance pay for me to get home?

Not usually. Most policies will pay for transportation to what they consider to be the nearest adequate medical facility (such transport is known as medical evacuation)—but that could be thousands of miles from your loved ones and the doctors you trust. If you want to know that you can get home, you’ll need to purchase additional coverage from a company such as Medjet: Once you become a member by paying an annual fee, Medjet will arrange and pay for transportation back to your hospital of choice, anytime you are hospitalized more than 150 miles from home. (Full disclosure: Medjet is a sponsor of WendyPerrin.com. But they’re a sponsor specifically because Wendy is a member and uses their services herself.)

| Can I call off my trip for any reason?

No. Each policy defines the allowable reasons for which you can cancel and get your money back. To cancel your trip because of a terrorist attack, for instance, the attack typically has to happen in a city listed on your itinerary—not just anywhere in the country you’re visiting.

You can purchase additional “Cancel For Any Reason” (CFAR) coverage, but it’s pricey, and even then, you’ll generally only be reimbursed 50% to 75% of your trip cost. As with pre-existing condition benefits, you usually have to purchase CFAR coverage soon after your initial trip deposit; you also have to insure the total cost of the trip, and you must cancel more than 48 hours prior to your departure.

Read more about CFAR coverage in our article “Cancel For Any Reason” Travel Insurance: What It Is and How It Works.

| What if the travel company goes out of business?

If you paid by credit card—which we always recommend—your first step should be to file a billing dispute with the credit-card company. The Fair Credit Billing Act stipulates that you are protected against charges for goods or services you do not receive. If you can prove that’s the case, those charges will be credited back to your account.

Some third-party travel insurance policies also cover trip cancellation due to financial default—meaning that an airline, tour operator, cruise line, or other supplier ceases operations, leaving you without a trip. (Travel insurance usually will not cover you if the company declares bankruptcy or if you booked the supplier via a travel agency that goes out of business.)  Most insurers publish a list of which suppliers they will cover, or which they won’t, so check that when choosing your policy. As with pre-existing medical conditions, financial default clauses often require that you purchase the insurance soon after making your first payment, and the coverage typically doesn’t start until 10 to 14 days after you’ve purchased the policy.

Here are a couple of examples:  Let’s say you’ve booked a Mediterranean cruise and flights to Venice, where you’ll board the ship. The day after paying your initial deposit, you insured the entire purchase under Travel Insured International‘s Worldwide Trip Protector Plus plan. Two days before you’re due to leave, your airline goes belly-up, and all other flights to Venice from your hometown are booked, so you’re unable to make it to the ship.  Travel Insured International will reimburse you for the costs of your flights and the cruise you missed.

In another scenario, let’s say you’ve booked a trip to see the Pyramids in Egypt.  A month after putting down a deposit on the trip, it occurs to you to insure your considerable investment, and you opt for AIG Travel Guard‘s Gold Plan.  A few weeks before your departure, your Egypt tour operator ceases operations, and it turns out that none of your in-country arrangements have been confirmed or paid for. Even though your insurance policy covers financial default, it won’t pay out in this case because you didn’t purchase the policy within 15 days of your initial trip payment.

| What if the travel company goes out of business?

It would be so easy if one size fit all—but it doesn’t. To know which policy is right for you, think about what keeps you up at night. Are you most concerned about a sudden flare-up of that nagging knee injury? Or about not making it home for a relative’s funeral? Or having to miss your bucket-list cruise because your boss needs you in a meeting? Or deciding to cancel your trip because of a terrorist attack at your destination?

Websites such as insuremytrip.comsquaremouth.com, and travelinsurance.com allow you to input your details and compare multiple policies at once, narrowing in on which one is right for you.  It’s also important to get on the phone with any potential insurer and ask how their policies would work, if the hypothetical reasons why you’re considering travel insurance (e.g., you have an elderly father and would want to cancel your trip if he were hospitalized) were to actually occur.

Based on 30 years of experience as a travel journalist, Wendy believes that Travelex is the best option in many circumstances. They’re relatively likely to reimburse you and to do so quickly. (They have a 98% approval rate for claims submitted, typically with a 3- to 5-day turnaround time.)  They have two straightforward options: Travel Basic covers trip cancellation/interruption and medical expense/ evacuation and is generally best for domestic trips; Travel Select has more generous benefit limits and includes a wider range of allowable reasons to cancel. Both plans operate as primary coverage, and you can add a Cancel For Any Reason upgrade to Travel Select plans. (Disclosure: Travelex is a sponsor of WendyPerrin.com.  Wendy chose them as a sponsor because of their high standard of customer service. If you use this link for Travelex, you can help support our honest and rigorous efforts on behalf of travelers.)

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