Travel insurance: What you need and what you don’t

Cruise lines, tour operators, travel agencies, and insurance agencies all suggest you need travel insurance—and you should buy it from them. As a result, some travelers aren’t sure of just what they need and where to buy it. One reader recently asked, “We’re shopping for a cruise, and several of the cruise agencies offer trip insurance. One quoted a price of more than $100; another was as low as $25. What is the difference and is this something we should purchase?”

My short answers are (1) for a cruise, travel insurance is usually a good idea, and (2) for maximum protection, you should buy it from an independent insurance agency rather than from a cruise line (or tour operator).

Most travelers should carefully consider two basic travel insurance coverages: trip-cancellation and interruption (TCI) and medical/emergency evacuation (medevac). Although the industry offers a bunch of other coverages, most of them either (1) duplicate coverage you already have, (2) cover extremely unlikely risks, or (3) address trivial risks.

Trip cancellation

The case for TCI is straightforward. Cruises, tour packages, vacation rentals, and some other big-ticket travel purchases typically require full prepayment, often months in advance; many of those impose substantial cancellation penalties or even total forfeiture, especially if you cancel shortly before departure. Any time you face a cancellation penalty or loss that’s more than you can comfortably walk away from, consider TCI.

The “interruption” component of TCI covers additional expenses you might incur after you’ve started your trip if you have to return early—the extra costs of changing your air ticket, for example.

Don’t assume a good excuse for cancellation or interruption will get your money back. The suppliers give you ample warning of cancellation penalties when you book, and if you decide not to buy insurance, they figure that’s your gamble.

What’s covered: TCI generally reimburses what you can’t recover from suppliers when you have to cancel or interrupt a trip for a “covered reason.”

• Covered reasons typically include illness or accident to you, a traveling companion, or a close family member who remains at home. They also include a laundry list of other possibilities, such as hurricanes or other natural problems in a destination area, getting called to jury or military duty, your house’s burning down, or even missing a departure because of a traffic accident on your way to the airport/cruise port.
• Most TCI policies cover only what’s specified in the policy, with little or no wiggle room. Specifically, most do not cover cancellation for business reasons, although a few newer ones do provide at least partial recovery for any reason, including business. Also, policies differ in their treatment of domestic disturbances in destination areas—some kick in on the basis of general public knowledge, while others may pay off only if and when the State Department issues an official warning.

What’s not covered: Although nominally similar, some TCI programs are more restrictive than others.

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• TCI is almost always secondary, meaning it will pay only what you can’t first recover from the suppliers. If you can recover the value of an air ticket, for example, TCI does not reimburse you if you have to cancel.
• Most TCI policies exclude “pre-existing medical conditions,” meaning they won’t reimburse you if you have to cancel because of a medical condition for which you saw a doctor or took medication within a set period of departure—usually three to six months. However, many issuers waive that exclusion if you buy the insurance shortly after making your prepayment—usually one to two weeks, depending on the company. As far as I can tell, most of the disputes travelers have with TCI revolve around preexisting medical conditions, so if you decide to buy TCI, make sure you get a policy that waives the exclusion.
• TCI policies generally do not pay off in the event of financial failure of the supplier or agency that sells you the policy. That’s usually not a problem with a major cruise line, but historically every year or so at least one tour operator fails, leaving travelers with neither their trip nor their pre-payments.

True TCI vs. waiver

Cancellation protection comes in two basic forms, which vary significantly in coverage (and price).

TCI you buy from an 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 your prepayment until you return home.

Some “insurance” you buy from a cruise line or tour operator is a “cancellation waiver” rather than true insurance. For a fee, the cruise line or tour operator waives its usual 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 have tougher requirements for pre-existing medical conditions, too.

Waivers are usually less expensive than true insurance and many provide a lot less protection.

Medical insurance

If you’re heading outside the U.S., you should also consider supplementary medical insurance. Year-round health/medical programs, including HMOs, may well cover you while you’re away from home, even outside the U.S. But some don’t, and even when they do, you may have a stiff deductible. Medicare never covers foreign travel, and the foreign-travel benefits of Medicare supplement policies “C” and higher are limited: 80 percent of emergency medical treatment costs, with a $250 deductible. If your regular medical coverage is not sufficiently robust, you should therefore consider additional medical coverage. It typically covers two financial risks:

• Doctor/hospital/dental expenses you face while traveling.
• Emergency transportation to an adequate medical facility in the event of a serious illness or accident.

Adequate medical insurance usually comes bundled with TCI. But if you need more—especially medical evacuation—you can buy more. And even if you don’t need TCI, you may want to buy a separate medical policy.

Buying travel insurance

The best way to buy travel insurance I know is to get a third-party policy through one of the several online comparison sites, including One Travel Insurance, InsureMyTrip.com, QuoteWright, Squaremouth, Total Travel Insurance.

• In general, buy the least expensive policy that meets your needs.
• If you (or your traveling companion) work in a job with unexpected demands, look for a policy that covers cancellation for any reason, not just a list of “covered” reasons.
• Normally I recommend against the insurance that travel suppliers sell for their own tours—there are too many loopholes. But rates on most third-party policies increase sharply with age, so senior travelers should consider a supplier’s program if it’s not age-rated.
• Some “gold plated” policies cover a lot of other circumstances, including delays, delayed baggage, and personal property. However, your regular homeowner’s policy may well cover property losses, and the other financial risks are marginal and don’t justify the extra cost. If they come with the policy, fine, but don’t pay extra.

Policies from the major companies vary quite a bit in the fine print, especially about what they consider “covered” reasons. Read the fine print carefully before you buy.