Travel insurance: Should you leave home without it?

Insurance protects you against trip cancellation penalties, tour-company bankruptcies, and more—but be sure to read the fine print.

By Risa Weinreb

For many people, a vacation is their third biggest annual expense, after home and car outlays. That's why, in our post-Sept. 11 world, more and more travelers are seeking the security of travel insurance. Companies that offer it report a 30 percent increase in sales since the Sept. 11 attacks, according to CNNmoney, a Web site maintained by CNN and Money magazine. But is travel insurance necessary? And if you want it, what should you look for in a policy?

"Most trips don't require insurance—business travel, for example, or going to see Aunt Tilly for the weekend," says Bob Hunter, director of insurance for Consumer Federation of America, a consumer advocacy group. "But if you're talking about an investment of thousands of dollars, then you might consider it." Other observers, however, recommend coverage even if you're contemplating a more modest jaunt.

"Generally, travel insurance is used to cover trips that are prepaid, such as a cruise or a tour, or for a nonrefundable airline ticket, or if you're traveling far from home," explains Beth Godlin, senior vice president of marketing for Access America, a leading travel insurance provider. "But even families visiting relatives might want to make sure they have access to a 24-hour hotline service should something happen."

Here's a closer look at factors that might make travel insurance a good bet for you.

Consider which type of insurance you need

There are three main kinds of travel insurance available:

Trip cancellation/interruption coverage—generally the only travel insurance most people need—will enable you to recover a nonrefundable deposit if you have to cancel a trip because of illness, injury, or other unforeseen circumstances, or if you have to cut your vacation short. Some policies also bundle in additional coverage, such as trip delay insurance (reimbursement for accommodations and other expenses if you're stranded), or an allowance to buy essentials if your suitcases are delayed in transit. Frequent travelers can buy annual policies that cover all tours, cruises, and flights they take during a given year.

Medical insurance isn't necessary if you have health insurance—although if you belong to an HMO, you should make sure you're fully covered when traveling outside your home state or in foreign countries.

Even if your health insurance follows you everywhere, emergency medical evacuation coverage is a good idea if you're planning an adventure vacation in a remote corner of the world, such as trekking in Borneo or white-water rafting on the Zambezi River. A broken leg or bout with malaria can necessitate helicopter rescue plus emergency evacuation back to the US—at an out-of-pocket cost of $7,500 to $35,000 if you don't have insurance. Worse, the evacuation team might refuse to act unless they're paid up front.

Lost luggage insurance is rarely warranted. The airlines are responsible for up to $2,500 per ticketed passenger on domestic flights if they lose your luggage, but you'll have to fill out a form listing what was in the bag—and don't be surprised if the airline asks you to produce receipts, especially if you make a large claim. Most airlines pay up to $640 per bag on international flights, usually depending on the weight of the bag (determined at check-in).

Be mindful, too, that your homeowners or renters insurance should cover lost or stolen bags if you have off-premises coverage. Check your policies before you buy additional coverage. If you travel with expensive computer equipment, cameras, or jewelry, you may want to take out a special personal property endorsement or floater that will cover the full value of these goods.

What you'll get for your insurance dollar

Two factors usually determine the cost of a travel insurance policy: the age of the traveler and the cost of the trip. Destination doesn't affect price—coverage costs the same whether you're traipsing to London or Lima or Lahore. Trip cancellation/interruption protection generally runs 5 to 7 percent of the price of a trip—about $250 to $350 to cover a $5,000 cruise. And peace of mind is getting more expensive. Since Sept. 11, premiums have gone up 10 percent across the board at Travel Guard International, which handles nearly 60 percent of the US travel insurance market.

Here's how the coverage works: If you need to cancel or curtail your travel, trip cancellation/ interruption insurance will pay the difference between the refund you get from the airline, cruise line, or tour operator, and what you originally paid. That means that you must first seek reimbursement with the tour company before you file an insurance claim.

Now the fine print: The insurance will pay out only if you have to cancel or cut the trip short because of a covered reason. Although policies vary widely, they typically cover misfortunes such as a traveler's serious injury or illness; death of a family member; natural disasters; or weather that disrupts services. Some also cover strikes; airline, cruise line, or tour operator default; or "unforeseen emergencies" such as a house flood, jury duty, or the loss of a job.

Important: Travel insurance must always be purchased before your departure.

Pay attention to what's not covered

Typically, a travel insurance policy won't kick in if you decide to stay home because of an unexpectedly heavy workload, tight finances, or other such circumstances. Also, verify whether a policy covers pre-existing medical conditions, such as an old back injury flaring up, or a close relative's recurrent illness.

One exclusion turned out to be somberly ironic after the Sept. 11 attacks. The major travel insurers covered trip interruption because of terrorism on foreign soil, not domestic attacks. "Frankly, no one ever contemplated having to use such coverage in the US," observes Godlin of Access America.

Nonetheless, most major companies honored claims resulting from the Sept. 11 catastrophe. "Our terrorism coverage now includes both international and domestic terrorism," says Dan McGinnity, vice president of public affairs for Travel Guard International. "It's something consumers are looking for." Regarding terrorism, some policies allow you to change your travel plans if an attack occurs in a city on your itinerary close to your arrival date. However, simply the issuance of a US State Department warning about a destination may not be deemed a valid reason for cancellation.

More prosaic exclusions also lurk in the fine print. Labor strikes may be excluded if they're "foreseeable," which for some insurers means that a union is in a cooling-off period or has approved or announced a strike. Check the wording.

Review policy-effective dates, too. "On some policies, your trip-cancellation coverage stops on the date your tour begins," notes Eric Ardolino, president of A&S Travel Center in Connecticut. "If you have a problem while you're on your trip, you're not covered. Make sure you have emergency evacuation insurance, loss of trip use, and so forth."

Engaging in extreme sports such as mountain climbing, bungee jumping, or skydiving may also be excluded. Many tour operators offer specialty coverage for expeditions such as these. Divers, for example, can buy the Diver Protection Program sponsored by the Professional Association of Diving Instructors ( www.diveinsurance.com ) or DANTravelAssist through the Divers Alert Network ( www.diversalertnetwork.org ).

What if your tour operator goes belly-up?

While it's hard to board an airplane nowadays without worrying about terrorists, the real danger for most travelers is more mundane—the bankruptcy of their tour operator, cruise line, or airline. Although supplier default traditionally has accounted for fewer than 1 percent of travel claims, that number shot up to nearly 5 percent in 2001, according to Travel Guard.

After a surge of major financial failures in fall 2001, including American Classic Voyages, Renaissance Cruises, Swissair, and tour operator Jet Vacations International, some insurers only cover specified cruise lines or tour operators.

Again, read the fine print carefully. Look for policies that pay in the event of "cessation of services" and that do not require that the company file for bankruptcy (Chapter 7) or reorganization (Chapter 11). Some companies never declare bankruptcy; they just vanish, along with your deposit.

One of the best ways to protect yourself against financial default of your airline or tour operator is by charging your trip to a major credit card. Visa, MasterCard, and American Express all offer similar protection: If you pay for goods or services that aren't delivered, you get your money back.

With MasterCard, for instance, cardholders have 120 days from the date a service was due to be rendered (i.e., your departure date—not the date you made a deposit) to request a refund from your issuing bank. Another bonus with most major credit cards: automatic life insurance for your flight when you charge your airline tickets. American Express offers up to $100,000 in travel accident benefits for tickets purchased with the "green" card, and up to $500,000 with the "platinum" card.

Where to buy travel insurance

Although many cruise lines and tour operators sell travel insurance, that's not the best way to buy it. "We have a rule of thumb: Never buy insurance from somebody who's selling you something else," notes consumer advocate Bob Hunter. "If you decide you need insurance, talk to an insurance professional."

Tour operators and cruise lines might charge more for insurance, and there's a sneaky pitfall if you buy insurance through one of these vendors: You probably won't be able to collect if the wholesaler goes under. "Then you have insurance that has no insurance anymore," remarks A&S Travel Center's Ardolino.

You can buy travel insurance directly from the major companies (see "They've got you covered"), either through their Web sites or toll-free phone numbers. Internet-savvy shoppers can also get quotes from online brokers. One large online site, insuremytrip.com , offers more than 30 plans from eight different companies, with a nifty comparison chart that lets you weigh varying plans.

Save everything in case you need to make a claim, experts recommend. "For travel delay claims, supply receipts for additional meals or lodging expenses you incur. For medical claims, documentation is required. If you cancel your trip in advance, we're going to ask for the originals of travel documents such as airline tickets," explains Dan McGinnity of Travel Guard.

New trends to address new concerns

In the aftermath of Sept. 11, "the big issue is safety and security," states McGinnity. "In the past, people bought travel insurance primarily for the financial protection. Now they want to have a worldwide emergency service at their disposal." Both Travel Guard and Access America offer 24-hour hotlines, with help for everything from canceled flights to medical evacuation and legal services.

Increasingly, insurers are promoting "early bird specials," with extra benefits if you buy travel insurance when you book your trip (i.e., within seven to 14 days of making your initial deposit). One of the most important benefits often extended to early purchasers: coverage of pre-existing medical conditions.

Addressing concerns about terrorism, Access America has launched a program called Free-to-Go. In addition to providing emergency travel and medical assistance to stranded travelers, in the event of a terrorist attack, the program helps them contact family members and business associates, check on their homes and pets, and make other necessary arrangements.

Although insurance policies make for only slightly more scintillating reading than a dishwasher repair manual, slog through the exclusions, exceptions, and waivers. Most reputable companies give you a few days to review the terms of a policy and request a refund if you're not satisfied. If you have any questions, call the insurer's toll-free number and ask for clarifications. That's the surest way to get the coverage you need, once you've decided you need it.

They’ve got you covered

The major companies providing trip insurance for US consumers are:

Access America
PO Box 90315
Richmond, VA 23286
866-807-3982 (toll free)
www.accessamerica.com

Travelex
2121 North 117th Ave.
Omaha, NE 68164
800-228-9792
www.travelex-insurance.com

CSA Travel Protection
PO Box 939057
San Diego, CA 92193
800-873-9855
www.csatravelprotection.com

Travel Guard International
1145 Clark St.
Stevens Point, WI 54481
800-826-4919
www.travelguard.com

The author is a travel writer based near San Francisco.

Risa Weinreb. Travel insurance: Should you leave home without it?.

Medical Economics

2002;9:63.