Travel Insurance: What It Is and When You Need It

Travel companies are quick to offer optional travel insurance as you’re making your purchase. This insurance provides protection against losses you may experience while traveling or due to trip cancellation or interruption. However, you should not rush into purchasing travel insurance without evaluating how its coverages affect your specific travel situation. To do this, you must understand some travel insurance basics, and verify what coverage you actually need.

Travel Insurance

What Does Travel Insurance Cover?

Travel insurance is often sold as a package and can include multiple types of coverage. The most popular choices include:

  • Trip Cancellation, Interruption and Delay

Trip cancellation insurance coverage pays you for loss of prepaid, nonrefundable expenses if your travel operator shuts down. It is also applicable if you have to cancel your trip due to a covered reason, as defined by the policy. This can include illness or death of you or a family member. It also covers reasons due to Mother Nature (weather or natural disasters).

Trip interruption insurance reimburses for nonrefundable costs for the unused part of the vacation that was interrupted. It only covers the reasons identified in the policy.

Trip delay coverage handles expenses such as accommodations or meals when your travel is delayed. You may recover costs for accommodations and meals if your original flight has been delayed or canceled due to weather.

Many travel insurance policies have cancellation, interruption and delay coverage.

Be aware of:

  • Exclusions. Read the policy carefully to understand under what circumstances cancellation, delays, and interruptions will be covered. These conditions may vary between carriers and policies. Possible exclusions include terrorist attacks, pre-existing medical conditions and changing your mind.
  • “Cancel for any reason” coverage. Some insurers provide additional endorsements that may give a 100% refund if you choose not to go on the trip. The reason why isn’t important. If your cancellation is for a medical reason, you may be able to purchase a pre-existing conditions policy.
  • Review the maximum allowed per-day, per-trip, and per-policy limits that will be reimbursed due to cancellation. You should also check these for your delay and trip interruption insurance.
  • Baggage and Personal Belongings

This protects against damage, loss or theft of your luggage and personal items during travel. Some plans may provide reimbursement for additional expenses if your delay extends beyond a certain time frame (usually 12 hours).

Be aware of:

  • Limits: The policy may place limits (usually $1,000) on reimbursement maximums for each traveler, specific items, or types of items.
  • Check other coverage: You may already have coverage through your renter’s or home insurance regardless of if your property is in your home. Your claim will be subject to your deductible, which is an expense you must pay before insurance is applied.
  • Emergency Medical Assistance, Evacuation and Repatriation

If you fall ill or are injured while on vacation, this coverage will pay for your medical expenses. The cost of transporting you to the nearest hospital is covered by medical evacuation. Medical repatriation may be used to cover costs for flying you home.

Be aware of:

  • Exclusions: Pre-existing conditions may not be covered. Some recreational activities, including certain sports (like skiing or horseback riding), may be covered. Protection may not be granted for high-risk activities like skydiving or parasailing, and organized sports competitions. You may consider buying an additional policy designed for high-risk activities or competitive sports.
  • Limits: The policy will pay for all covered expenses up to a pre-specified limit.
  • Deductible: The deductible may be expensive and must be paid before the insurance applies.
  • Check other coverage: It may be wise to review your health insurance plan for what is covered when you are traveling domestically and internationally. For example, Medicare does not provide coverage outside of the United States. If you have questions, call your insurer’s customer service department and ask them.
  • Major Medical Insurance

These plans are designed for people who will be traveling internationally long-term and need comprehensive health insurance. They work like a traditional care plan, except that they are not governed by the Affordable Care Act. As a result, coverage may be limited, and there may be exclusions if you have a pre-existing condition.

Be aware of:

  • Check other coverage: Look at your current health insurance and see if there is already coverage for long-term travel abroad. Review the coverages, limits, exclusions and other terms. There may be additional conditions for using and maintaining your health insurance while out of the country.
  • Provider network: It may be impossible to find health care providers based abroad who are in the plan’s network.
  • Out-of-pocket expenses: Review deductibles, copayments, and coinsurance expenses for medical care abroad. You will be responsible for these.
  • Limits: The limits may not be the same for coverage and other benefits (like prescription drugs) as they are at home. If they are lower, you will want to ensure they are still sufficient to cover your needs.
  • 24-Hour Assistance

This is a 24-hour hotline that you can call for assistance with several emergencies. It is usually included in most insurance packages. You may reach out if you need help:

  • rebooking a missed flight,
  • locating or replacing lost luggage,
  • finding a doctor or lawyer, or
  • understanding what vaccinations and travel documents are needed.

Be aware of:

  • Services covered: Your policy should specify which services are included. For example, some plans may provide concierge services for planning activities and securing reservations and tickets; while others do not.
  • Rental Car Coverage

If renting a car, this will cover damages due to an accident, vandalism, or natural disasters.

Be aware of:

  • Limits: Damage to the vehicle may be covered only up to an amount specified in the policy.
  • Not included: Liability insurance, which pays for damage you cause to other people’s vehicles, property, and medical treatment, is not covered.
  • Check other coverage: You may already have coverage through your current car insurance policy. Many auto insurance policies provide coverage in Canada only. Car insurance requirements in other countries can be complex and vary wildly. Call your auto insurance and ask if your policy protects you when renting cars abroad. You may also purchase insurance at the car rental company counter. For more information on car insurance requirements for different countries, check out the U.S. Embassy website.
  • Accidental Death and Dismemberment Insurance

This coverage provides a lump-sum payment to a beneficiary should you die on the trip due to an accident. It also pays out if you lose a limb, hand, foot, eyesight, hearing or speech. Some plans specifically limit your death or dismemberment to occurrences on a plane.

Be aware of:

  • Check other coverage: This may be unnecessary if you have enough life insurance. Most employers offer a life insurance policy to their employees.
  • Exclusions: Accidental death and dismemberment insurance doesn’t pay for death or accidents caused by certain medical issues. Excluded conditions include a stroke, aneurysm or heart attack. There is also a time limit on when the death or loss of body parts can occur from an accident. (This limit is usually one year.) Accidents from high-risk activities may not be covered.

Coverage may be possible for a single trip, or multiple ones. It may also cover trips over a long-term (yearly) period. Select single trip coverage if you are taking a single trip and travel occasionally. If you take multiple trips per year, with each less than 30 days, look into multi-trip coverage. If you’re going abroad on a single trip for the better part of the year, consider an annual policy.

How Much Is Travel Insurance?

Expect to pay between 4-8% of the cost of your trip for a comprehensive travel insurance plan. (This is according to the U.S. Travel Insurance Association). Your plan’s price will depend on:

  • The cost and length of the trip. Longer and more expensive trips have higher policy costs.
  • The destination. If you go to a place with higher health care costs, your insurance costs may rise to reflect this increase.
  • Medical conditions to be covered. Pre-existing conditions coverage costs extra if you want them to be covered.
  • Amount and range of coverage. The more risks you would like covered in the policy, the more expensive it will be.
  • Your age. The older you are, the pricier the coverage will be.

Do I Need Travel Insurance?

Travel insurance may not be required if:

  • The trip is inexpensive. A 5-hour train ride to visit relatives may not require the protection of travel insurance. The ticket may cost as little as $46 round trip, plus about $3-$4 for the insurance. Let’s say you make this trip every 2 months or so. In the worst-case scenario, you may be out a small amount for your travel costs. Purchasing travel insurance every for inexpensive travel may negate the financial benefits when you actually do file a claim. Meanwhile, you would have spent $24, or the cost of a one-way ticket, on travel insurance.
    Some costs may not require travel insurance for reimbursement. Hotel accommodations and plane, train, or bus tickets may be reimbursed by going to management. You may either get a refund or credit for future travel. Travel insurance is better used if the travel provider cannot or will not reimburse you.
  • Your trip already has protection benefits. Duplicating coverage by purchasing travel insurance not only brings marginal benefits but costs you potential vacation spending money. If you have a homeowner’s or auto insurance policy, you may already have some or all of the protections you will need. Between them, you’ll have coverage for your property, your medical needs, and rental car liabilities. Many credit cards offer travel benefits and protections if you purchase the trip with the card. For example, the Chase Sapphire card offers primary CDW coverage. For more information on travel rewards cards, stop by our Travel Rewards Credit Card Review each card’s benefits and exclusions to select the most appropriate card for you.
  • You took too long to purchase the insurance. Ideally, travel insurance should be purchased within 10-15 days of making the reservation. Past this date, you’re probably going to pay a higher premium or have to settle for reduced benefits. Delayed purchase travel insurance can be complicated by:
    • Changes to your work or personal circumstances. While it is not common, it is possible that your ability to make a claim may be affected.
    • Exclusions due to predictable catastrophic events, like a hurricane.

How to Choose the Right Policy

If you still think that you must get travel insurance, the next step is to choose the most appropriate policy. Choosing the right type of insurance and the issuer that meets your budget and requirements takes some work. Keep these points in mind:

  • Who’s underwriting and issuing the policy. Some tour operators and cruise ships offer their own policies to customers. The problem is that the policies are only good as long as the operator or cruise line is in business. Consider using policies endorsed by a trustworthy third-party travel insurance company.
  • Where you live. Like other insurers, travel insurers are licensed per state. States, where more travel insurers are licensed, have more options than others.
  • How often you travel. Frequent travelers, and/or those who take longer, more expensive trips may want to consider a multi-trip or annual insurance policy. The cost may be higher up-front, but you pay a lower per-travel-day cost compared to a single trip policy. Statistically, you’re more likely to file a claim if you travel more frequently than a once-per-year traveler. Infrequent travelers, or those who take shorter, less expensive trips, may prefer to purchase single policies instead.
  • How much you spend on travel. The total cost of your trip is a key consideration. Healthy frugal travelers who take fewer risks may not have to pay for travel insurance. People who have health concerns, have risky activities planned, or intend to splurge on their vacation may think differently. It may be worth it to spend money on a comprehensive insurance policy, and maybe a few extra endorsements.
  • Where you travel. It’s generally recommended that you purchase medical and evacuation coverage for an overseas trip. As a visitor, other countries’ health care systems may require you to pay large out-of-pocket costs for medical care. This is despite having good medical insurance in the U.S. Being medically evacuated or having your remains repatriated to the U.S. can be cost-prohibitive without travel insurance. Dealing with this financial burden compounds upon an already difficult time for your distraught relatives.
  • What you plan to bring on your trip. Long trips may usually require a lot of baggage. Within 3 months, seasons may change, and so will the clothing and other items that you will need. Consider getting baggage insurance, which can be obtained by itself or as a supplemental policy. It covers expensive items like jewelry, electronics, and other hard-to-replace items. Baggage policies may not cover all your losses, but it may bridge gaps in your renter’s or homeowner’s insurance deductibles. Check your home insurance policies before you purchase the baggage insurance, just to make sure this will work.
  • When you make your major travel expenses. Generally, travel insurance companies give the best benefits when the insurance and tickets are purchased close together. Each insurer may have a different window to make the purchase. Delays may exclude carrier bankruptcy and medical coverage for pre-existing conditions from your policy.
  • What your professional and personal situation is. You should assess your professional and personal situations before purchasing travel insurance. Your job security, home situation, and personal and family’s health all factor into the likelihood that you will complete the trip.
  • What risks you expect to encounter. Risk is everywhere. The likelihood of encountering risk varies based on where you plan to go, and what you plan to do. Traveling to a tropical country increases the risk of mosquito-borne illness, and possibly a higher chance of a medical emergency. Consider purchasing coverage for medical emergencies and evacuations. Select coverages that match the risks you may face at your destination and other stops en route. Review the U.S. State Department’s travel bulletins to verify places with civil unrest. Many policies exclude injuries in this case, and you may have to purchase additional, expensive insurance as a result.

Conclusion

Whether you purchase travel insurance for your next trip is a personal choice. The best decision for this trip may not be the most appropriate decision for all your future travel. You should always ensure you have adequate coverage. Ask yourself the following questions:

  • What’s the worst that can happen?
  • How likely is it to occur?
  • Do I have coverage for that already?

If you have a policy providing the specific coverages you’ll need, you may choose to forgo travel insurance. You may have the required coverages as benefits on a credit card. It may also make sense to purchase additional coverage based on your unique needs. Make sure this is done within the benefits window or else your policy may have holes. The third option is to go without, which may be best in a very slim set of situations. It may be a good option if you’re healthy, the trip is inexpensive, or you’re engaged in low-risk activities. Otherwise, you may want to get travel insurance as protection against an expensive and risky situation.