Travel Insurance: Do You Need It? How to Find the Right Policy

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(Photo: @gballgiggs via Twenty20)

Travel agents, cruise lines, tour operators, and vacation rental agencies typically urge you to buy travel insurance; some even automatically include it as an “opt out” extra on any deal they make. Consumer advocates often conclude it’s worthless. Who’s right?

Both sides have their points: Insurance is invaluable for some trips, a waste of money for others. Here’s how to decide if and when you need travel insurance, and how to find the best travel insurance for the trips you do want to insure.

Types of Travel Insurance

The most important travel insurance options are trip-cancellation/interruption (TCI) and medical/emergency evacuation (TMI). Most other coverages often (1) duplicate insurance you probably already have; (2) cover extremely unlikely risks, or (3) address trivial dollar risks.

The basic rule of most insurance is that it covers specific contingencies that you can’t foresee at the time you buy. That’s why travel insurance is called “named peril” insurance: It covers only the contingencies specifically enumerated as “covered reasons” in each policy. And that’s why most insurance does not cover any situation or circumstance, even if named, that is foreseeable at the time you buy your insurance.

Trip Cancellation/Trip Interruption Insurance (TCI)

The case for TCI is straightforward—especially the “cancellation” component. Flights, 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 if you cancel, especially when you cancel close to the departure or occupancy date.

A lot can happen to you or to your destination between the time you pay and the time you finally get home from your trip. You should consider TCI any time you face cancellation penalties or deposit losses that are larger than you could comfortably walk away from if you were forced to cancel.

The “interruption” component of TCI covers additional expenses you might incur if something happens after you’ve started your trip and 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 travelers’ tales of unexpected woe might be, suppliers generally 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, often advising insurance, and travelers who ignore those warnings voluntarily gamble that nothing will happen between the time they buy and the time they complete their trips.

TCI 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 you, your traveling companion, or a close family member who remains at home. They also include a laundry list of other possibilities, such as getting called to jury or military duty, having your primary residence burn down, or even missing a departure because of a traffic accident on the way to the airport/cruiseport.

They also include problems at your destination area, such as hurricanes and earthquakes, and financial failure of your airline, cruise line, hotel, or tour operator. 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 some cover limited business contingencies.

Because airlines almost always offer either a refund or rebooking in the event of a serious delay, TCI may not pay on a canceled airline ticket. However, TCI would pay cancellation penalties if the delay resulted in missing a cruise, tour departure, or arrival at a vacation rental.

TCI Exclusions

Although nominally similar, some TCI programs are more restrictive than others. TCI is almost always secondary, meaning it pays only what you can’t first recover from the suppliers or other sources. That means no refunds for canceled refundable air tickets and no refunds for payments made on credit cards if you can get a chargeback.

Most TCI policies exclude “pre-existing medical conditions,” meaning that they won’t reimburse you if you cancel because of a medical condition for which you or another covered person saw a doctor or took medication within a set period before departure, usually three to six months. However, many insurers waive that exclusion if you 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.

Cancel for Any Reason TCI Insurance Add-On

Some insurers offer an extra-cost feature that allows you to cancel a trip for any reason, foreseen or not. But it usually covers only 50 to 75 percent of your trip cost, and it does not cover cancellation within 48 hours or less of departure.

TCI Pricing

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. Cancellation Waivers

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 you can’t recover. And it covers you through your entire trip—from the time you make you prepayments until you return home.
  • Some “insurance” sold by cruise lines or tour operators is a “cancellation waiver” rather than true insurance: For a fee, the cruise line 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.

Medical/Evacuation (TMI) Insurance

Normally, whatever health insurance you have at home travels with you anywhere you go in the U.S., and many policies cover you outside the U.S. as well. Still, you may need supplementary medical insurance, especially for trips outside the U.S. Even if your program covers you, it may impose a stiff deductible.

Base 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 yearly deductible. If your regular medical coverage is not sufficiently robust to cover you fully while traveling, consider additional medical coverage.

Travel medical insurance typically covers two financial risks:

  • The “medical” component covers doctor/hospital/dental expenses. Some travelers buy separate TMI even when their regular health programs nominally cover travel. The reason is that many regular policies don’t pay up front for foreign medical services. Instead, you must pay medical expenses on the spot, often in cash, then apply for reimbursement after you 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.
  • The medical evacuation component covers transportation to an adequate medical facility in the event of a serious illness or accident that can’t be treated locally. Most regular TMI policies include some medevac coverage, but it might not be enough in a major emergency. Travelers can buy trip 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 U.S. 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. But those are rare situations. For most travelers, the evacuation you get with regular medical coverage is probably sufficient.

TMI Insurance Pricing

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—notably 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.

Minor Coverage Items (Delays, Lost Baggage, etc.)

Many bundled 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 $2,500 for baggage damaged or lost 30 days or more, and $500 to $1,000 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 you can’t first recover through other sources. In the case of baggage loss, the insurance pays only what you can’t first recover from the airline or from your homeowners’ insurance.

Many premium credit cards include some minor-coverage items as automatic benefits, without any extra charge at all. Minor coverages are typically included in bundled policies, especially the more expensive “gold plated” policies. However, you can add them as options to some less expensive policies.

COVID-19 and Travel Insurance

In general, TCI and TMI cover you a lot better for things that happen to you rather than things that happen at your destination. Nowhere is that more apparent than in the current COVID-19 pandemic, during which many policies are just catching up to current realities. If you plan to visit an area during an outbreak, TCI probably doesn’t cover cancellation of your trip, because the pandemic is foreseeable.

Moreover, only a few policies list an epidemic as even a covered reason. But if you catch the virus on your trip, the medical insurance probably does cover you, because your getting sick is not foreseeable. At this writing, insurers are hastily developing new policies to reflect COVID concerns more fully.

Travel Insurance Buying Guide

All travel insurance is subject to one basic rule: It guarantees your money, not your trip. 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 new destination accommodations. If a new ticket or hotel costs a lot more than the original, that’s your problem.

The basic rule of travel insurance (or any other insurance) is to buy the minimum amount you need and the least expensive policy that meets those needs.

TCI: Who Needs It, Who Doesn’t?

TCI is a good bet for anyone required to make large up-front payments for travel services that entail significant cancellation penalties. That typically includes cruises, tours, and vacation rentals. Policies that cover cancellation for any reason provide a big advantage for travelers who work in jobs subject to unexpected demands. Early purchase (within a week or so of the first deposit) of travel insurance is essential. Full “covered reason” and supplier default coverages are contingent on early purchase.

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.

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 only an airline failure, with no other big up-front costs. Travelers who buy tickets with credit cards enjoy no-cost chargeback protection.    

Although most TCI policies cover supplier default, a few do so only partially and some don’t cover it at all. USA Assist does not cover supplier default, for example; 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: Who Needs It, Who Doesn’t?

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.

Policies with Extras: Who Needs It, Who Doesn’t?

Other “gold plated” bundled policies that cover a lot of other circumstances (delays, delayed baggage, personal belongings, and such) are generally 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.

Family Travel Insurance Considerations

Most bundled travel insurance policies are priced to include an entire group, and the cost is usually lower than the per-person cost of individual policies, so buying for a family group is advantageous. The one exception is for groups including seniors age 75 or over, for whom rates can climb very high. If available, those seniors are often better off with the travel suppliers’ simple “opt out” policies that are not priced by age.

Where to Buy Travel Insurance Online

These days, the best way to buy travel insurance is through one of the several specialized online travel insurance company comparison sites, including:

These independent agencies sell travel insurance plan policies written by all the major insurance underwriters. Price comparison and policy selection is a snap: You enter your personal data, trip particulars, and what kind of insurance you want, and the site returns a long list of policies and their detailed terms. Most of these agencies sell extended policies as well policies for single trips.

Several other organizations specialize in full-time worldwide TMI and medevac policies, including:

Although those organizations focus on corporate policies covering a group of employees, they sell individual policies, too

The best travel insurance doesn’t come from one specific travel insurance provider, and isn’t limited to one policy type. Your best bet is to figure out what you need first, be realistic about whether or not trip insurance will even cover the things you’re worried about, and then compare options (and read the fine print) using a comparison site.

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Ed Perkins
Ed Perkins is a longtime consumer advocate and reporter. He spent 25 years in travel research and consulting and was founding editor of Consumer Reports Travel Letter. He is the author of "Online Travel" (2000) and "Business Travel: When It's Your Money" (2004). He was also the co-author of the annual "Best Travel Deals" series from Consumers Union. Perkins' travel expertise has led to frequent television appearances, including ABC's "Good Morning America,” "The CBS Evening News," CNN, and numerous local TV and radio stations.

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