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Travel Insurance Explained

Travel Insurance Explained
Jennifer G Gregory
Updated August 30, 2021
6 Min Read

Whenever you book an airline flight, vacation, or hotel room online, you are often presented with an offer for travel insurance post-purchase. Most people have some experience with car, home or health insurance, but not everyone is familiar with travel insurance and how it works. Unlike auto insurance, travel insurance is elective, which means it's up to you to decide if you want it. Yet many people still automatically sign up for the extra coverage, not knowing what the specific coverage is – and understanding if it is really worth the additional costs. 

What is travel insurance?

Travel insurance is a type of coverage designed to help protect you from certain kinds of unexpected events that can occur before or during your trip. These events or losses can be minor, like a delayed suitcase, or significant, such as last-minute trip cancellation or a medical emergency overseas. Some travel policies cover damage to personal property, rented equipment, such as rental cars, and even ransom requests. Ultimately, it's meant to help you travel with more peace of mind in case something unexpected occurs on your trip.

What does travel insurance cover?

When most people think of travel insurance, they think of the big things, like: illness, injury, unexpected death in the family – things that would prevent you from going on the trip. However, many policies cover a myriad of issues that might prevent you from going on your trip, or if something happens mid-trip and you have to cancel early.   

Other issues that may be covered include:

  • Severe weather that cancels flights or causes damage to your travel destination
  • Loss of job, or being forced to work during what you planned as vacation time
  • Jury duty and can’t get out of it
  • The travel provider goes bankrupt and/or stops service
  • While on the trip you get sick or injured and can’t continue
  • Emergency medical treatment on a trip 
  • Reimbursement for lost baggage.
  • Rental car insurance.

To simplify the process, we can break down travel insurance into three major categories:

  • Protecting you (emergency medical/death)
  • Protecting your stuff (lost/stolen luggage, rental car),
  • Protecting your experiences (trip cancellation or interruption, flight cancellation or delay, supplier bankruptcy)

Protecting you 

Most travel insurance pay doctor and hospital expenses up to the benefit limit when you face a medical emergency when traveling. However, you need to pay close attention to whether your travel medical insurance is primary or secondary. If your travel health insurance is primary, it will be the first policy to pay your travel emergency medical bills. In the event of secondary coverage, the insurer would only cover those expenses not covered by your personal health plan. They’ll apply deductibles, copays and maximums and pay what is covered by your health insurance plan; then your travel insurance will pay what’s left, up to the benefit limit.

If you are on Medicare, it is important to know that Medicare coverage does not cover you if you leave the United States. Also, many coverages have rules around pre-existing conditions. If you fall into this category, you will need to read the fine print to determine if you will be covered. 

Protecting your stuff

Travel insurance has many ways to protect your important items on your trip. If your luggage is lost or stolen, you will need to get some clothes, toiletries and other items and travel insurance can help pay for replacement items when your luggage is lost or stolen. Additionally, there are plans which provide reimbursement coverage lost or delayed luggage while you’re still traveling.  

As with all claims, a majority of the time you will need to provide a detailed account of what was lost or stolen. A good rule of thought is to take a picture of your open luggage with your cellphone. You then have tangible proof of your items and it also helps you remember the items packed.

Protecting your experiences

Travel insurance helps protect your experiences by reimbursing you for unused prepaid expenses if covered circumstances force you to cancel or interrupt your trip earlier than planned. Included in this category is:

Trip Cancellation or Interruption Coverage - reimburses a traveler for prepaid, nonrefundable travel expenses. Because insurance coverages vary, you will need to understand what your policy will or will not accept – and the amount of reimbursement coverage.    

Luggage and Personal Effects Coverage - protect lost, stolen, or damaged belongings during a trip. It also may include coverage during travel to and from your destination. Most providers, such as airlines, will reimburse travelers if their baggage is lost or destroyed because of their error. Most likely, there may be limitations on the amount of reimbursement. In this event, this type of coverage provides you with an additional layer of protection. Additionally, your homeowner’s policy could protect your possessions while traveling. 

Also, credit cards may provide automatic protection for things like delays and baggage or rental car accidents if used for deposits or other trip-related expenses. Net/net read the fine print and understand your travel policy.

What is not covered by travel insurance?

Depending on your coverage, there are still things that a travel insurance policy typically won’t cover. These include:

  • Natural disasters or health crises (like pandemics) that begin before you purchase
  • Losses due to pre-existing conditions
  • Travel for medical procedures – if you are specifically travelling for medical procedures, the policy won’t cover. 
  • Risky activity or adventure-type sports – bungee jumping, backcountry skiing, skydiving, – basically any risky activity may not be covered if you get injured.
  • Flights purchased with miles – the policy covers any associated fees, such as rebooking fees, but you will need to work directly with your airline to get miles reinstated.
  • Accommodations that aren’t as expected – just because the pictures in the brochure don’t match the actual place doesn’t guarantee reimbursement. Do your homework first, by reviewing the accommodations on reputable websites like TripAdvisor.  
  • Ignoring government travel warnings. Even if you're covered, your policy may be voided if you travel somewhere that the State Department has deemed unsafe.
  • Fear of travel – if your cancellation is solely from fear of travelling, that will not be covered.
  • Anything you lack supporting documentation.

Types of travel insurance

The popular categories of travel insurance include trip cancellation or interruption coverage, baggage and personal effects coverage, medical coverage, and accidental death or flight accident coverage. Coverage often includes 24/7 emergency services, such as replacing lost passports, cash wire assistance, and re-booking canceled flights. There are some policies that offer ransom coverage, which might make some people rethink where they are going on vacation if that is an option.

There are generally two kinds of trip insurance:

  • Basic trip cancellation protection, which usually covers lost bags, reimbursements for missed connections and a refund if you can’t travel because you’re sick or hurt.
  • Comprehensive travel insurance, which typically covers all that, plus any expenses related to medical or dental emergencies, disaster evacuations and even costs associated with accidental deaths. This type of coverage is naturally more expensive than the basic coverage.

Travel insurance and COVID-19

Many people are eager to travel again. But it is hard to feel confident about travelling to areas where COVID-19 cases are surging, or still prevalent. In most cases, travel insurance policies specifically exclude claims related to coronavirus. However, some insurers are making exceptions for policies already in effect. There are particular plans with “Cancel for Any Reason” coverage. Or, you might be able to add a “Epidemic Coverage Endorsement, which provides epidemic-related coverage for certain benefits. These benefits vary by plan and by state of residence, and are not available in all jurisdictions.

In the event that your travel has been cancelled by your travel supplier (airline, cruise line, or tour operator), you may be eligible for refund of those costs from the supplier, or a premium voucher that you can use for future travel. 

In these times of COVID-19, if you are considering travel (especially overseas), it is imperative that you read your plan documents to understand the coverage thoroughly so there are no surprises.  

Is travel insurance worth it?

The cost for travel insurance varies from traveler to traveler. The kind of protection needed by a US-based traveler who intends to scuba dive in the Great Barrier reef, for example, is vastly different from that needed by a family taking a short cruise through the Great Lakes. It’s not only important to compare travel insurance rates, but also coverage.

While there aren’t “one size fits all” policies, in general, the cost for a comprehensive travel insurance policy with Trip Cancellation is typically between 5% and 10% of the total trip cost. trip cost. For example, if you purchased a trip with a total cost of $10,000, travel insurance policies available to you will likely range in price from $500-$1000, depending on a number of variables (type of coverage, trip costs, where you are going, etc...).

So, is travel insurance worth the price? The answer will depend on a number of items:

  1. Whether your trip is refundable
  2. Where you are going
  3. How far out are you planning the trip
  4. Will you have health insurance at your destination
  5. How much coverage you get from your credit card

Though you may pay a hefty percent of your trip cost for travel insurance, it is often worth the investment for its potential to help reimburse you for hundreds of thousands of dollars of covered travel-related expenses like emergency evacuation, medical bills, and costs related to trip cancellation and interruption. 

Taking all these factors into account, the intangible is putting a price tag on the peace of mind that comes with knowing you’ll get some or all of your money back if your travel plans go awry. If worrying about something going wrong will overshadow your entire trip, the extra costs for travel will be worth it.

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