DEFINITION of 'Travel Insurance'
An insurance product designed to cover the costs and losses, and reduce the risk associated with, unexpected events you might incur while traveling. It's often pitched as the best protection for those traveling domestically or abroad. Many online companies selling airplane tickets or travel packages allow consumers to purchase travel insurance (also known as travelers insurance) as an added service. Some travel insurance policies cover damage to personal property; rented equipment, such as a rental cars; or even the cost of paying a ransom in the case of a kidnapping.
BREAKING DOWN 'Travel Insurance'
According to the Insurance Information Institute – an industry organization dedicated to improving the public’s understanding of insurance – the main categories of travel insurance include:
- Trip cancelation/interruption
- Baggage/personal effects coverage
- Major medical expenses
- Accidental death/flight accident
Travel insurance is frequently purchased as a package that includes several different types of coverage. Many travel insurance plans sold in the U.S. also include 24/7 emergency travel services, such as replacing lost passports, cash wire assistance and re-booking canceled flights.
As its name implies, trip cancelation insurance (sometimes known as trip interruption insurance or trip delay insurance) reimburses you for prepaid, nonrefundable travel expenses if you have to cancel the trip due to an illness, a death in the family or another mishap listed in the policy, or if you or one of your immediate-family traveling companions is forced to return home earlier than planned. This type of policy also kicks in if your vendor (airline, cruise line or tour operator) goes out of business. The insurance pays the difference between the refund you get from the vendor and the amount you originally paid for the trip.
Policies differ in terms of which reasons are acceptable, but it's fairly typical for this insurance to cover cancelation or interruption for the following reasons:
- Sudden business conflicts
- Change of mind
- Delay in processing your visa or passport
- Illness or injury
- Weather-related issues
Some policies may include additional coverage, which would insure you against one or more of the following events:
- An act of terrorism
- An accident on the way to the airport
- Fire or flood in your house
- Jury duty
And some policies offer “cancel for any reason” coverage for an additional cost.
Baggage Insurance/Personal Effects Coverage
This provides coverage if your belongings are lost, stolen or damaged during your trip, including while you travel to and from your destination.
Medical and Major Medical
This insurance can help you cover medical expenses and locate doctors, healthcare facilities and foreign-language services. It covers you if you need to be airlifted to a medical facility because of an accident or sudden illness, if you are sick or injured and have to spend an extended time in a foreign hospital, or if you need to be flown home to receive proper care – something known as a medical evacuation (all of which can easily reach $10,000 out-of-pocket). There are two basic types:
- Travel medical insurance provides only short-term medical coverage; the duration can be anywhere from five days to up to one year, depending on the policy.
- Major medical insurance is for travelers who are planning to take longer trips of six months to one year or longer.
Whether you purchase health insurance separately or you already have it, find out if you will need prior approval from your insurance company for any type of care. Be sure to you read all the fine print to see what preexisting medical conditions, if any, are excluded before you sign up; don't assume the coverage is the same as that of your regular health plan.
The U.S. government urges Americans to consult their medical insurers prior to traveling abroad to determine whether a given policy applies overseas. For example, your medical insurance may cover you in the U.S. and Canada, but not Europe.
Also, when traveling, always register your travel plans with the State Department through its free online service Travel Registration website; this way, the nearest embassy or consulate can contact you if there is a family emergency or a state or national crisis while you're traveling.
Accidental Death and Flight Accident
Similar to life insurance, in the event of an accident resulting in death, disability or serious injury to the traveler or a family member traveling with him or her, this type of policy pays benefits to surviving beneficiaries.
Purchasing Travel Insurance
You can purchase travel insurance in three ways:
- Per-trip coverage is the most common variety; according to the U.S. Travel Insurance Association, 80% of all travel policies fall into this category. Providing protection for a single trip, this coverage is ideal for people who travel occasionally.
- Multi-trip coverage provides protection for multiple trips during one year, but none of the trips can exceed 30 days.
- Annual coverage is for frequent travelers; it provides protection for a full year.
What Affects the Cost of Travelers Insurance?
In addition to the duration of the coverage, travel insurance premiums are based on the type of coverage, your age and the cost of your trip; standard per-trip policies cost about 5% to 7% of the trip’s cost. The cost of a policy may also vary by destination; trips to high-conflict zones or areas prone to bad weather could cost more. There are also specialized riders to policies, focusing on the needs of business travelers, athletes or expatriates.
Be wary of travel insurance companies that overprice their policies. Check out the reputation of the company you are looking to purchase from: One good start is the U.S. Travel Insurance Association, which provides helpful advice on choosing travel insurance. You can also go to your Better Business Bureau (BBB) office to find out about qualified carriers.
Deciding What You Need
Travel insurance offers good protection – but some policies may duplicate coverage that you already have, or provide coverage for costs that would have been refundable anyway. Before buying the most comprehensive travel insurance package out there, consider your actual needs:
Trip cancelation is a good idea any time you’re going to pay more upfront than you are comfortable losing. To help you decide if you need coverage, figure out how much money is actually at risk. If you put down $2,000 for a package tour, for example, and the tour's cancelation policy says you’ll get back everything but $100 if you cancel, you’re really only insuring that $100. Or, if you purchase a refundable airline ticket, there’s no need to insure it. Make sure you insure only the costs that would not be recoverable any other way.
Also, make sure you understand which reasons for cancelling the trip are covered, and make sure that they match your needs and concerns. A policy might cover you if you cancel your trip due to illness or injury, but if you’re more concerned with missing the trip because of work or because you’re uneasy about your destination, you’re probably better off with a “cancel for any reason” policy.
Emergency medical may or not be redundant. Most health insurance companies will pay “customary and reasonable” hospital costs if you become sick or injured while traveling, but very few will pay for a medical evacuation. Note that Medicare doesn’t cover any expenses outside the U.S. Before your trip, check with your insurer to find out what’s covered, and what’s not, and plan accordingly. Also read Is My Health Insurance Good Abroad?
Accidental death may not be necessary if you already have a life insurance policy in place. That being said, any benefits paid by your travel insurance coverage may be in addition to those paid by your life insurance policy, thus leaving more money to your beneficiaries. You might also consider a Hazardous Activity rider that provides additional coverage if your death is caused by a sport or activity not typically covered by travel insurance.
Baggage and personal belongings is a tempting one, since possessions getting lost, stolen or damaged is possibly the most common problem a traveler is likely to face. Keep in mind, however, that many travel insurance policies pay for belongings only after you’ve made every other claim available to you – which means you might not need some of the minor coverage. Your homeowners or renter’s insurance may well cover mishaps to your possessions wherever they happen, and airlines and cruise lines are generally responsible for loss and damage to your baggage during transport. Plus, your credit card may provide automatic protection for things like delays, baggage and rental car accidents, if you've used it to make deposits or charge other trip-related expenses. (See The Best Credit Cards for Travel Insurance.)
The Bottom Line
Before going out and buying the most comprehensive travelers insurance policy you can find, look into what's included in your existing policies: health insurance, homeowners/renter’s, life insurance. Don't overlook those credit card benefits. Also, find out which costs are recoverable outside of travel insurance (e.g., refundable airline tickets). That way, you can avoid overlapping coverage and only pay for the protection you actually need.
In general, you should avoid buying travel insurance from a tour operator or cruise line (if the company folds, you’ll have a worthless policy), and steer away from travel agents, who might sell the policy that earns them the highest commission instead of the one that’s best for you. It’s usually best to purchase travel insurance through an online broker (such as InsureMyTrip), which offers coverage from a variety of carriers. Before you make a purchase, speak with a sales rep, ask for a sample copy of the policy (and read it), making sure it offers all the protections you need. If you’re not sure something is covered, ask the rep to show you the specific language in the policy that proves it is. It's bad enough when a journey goes awry; discovering that your loss is disallowed would be adding insult to injury.
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