What is 'Travel Insurance'

Travel insurance is insurance designed to cover the costs and losses and reduce the risk associated with unexpected events incurred while traveling. It is a useful protection for those traveling domestically or abroad. 

BREAKING DOWN 'Travel Insurance'

Many companies selling tickets or travel packages give consumers the option to purchase travel insurance, also known as travelers' insurance.  Some travel policies cover damage to personal property, rented equipment, such as rental cars, or even the cost of paying a ransom.  Frequently sold as a package, travel insurance may include several different types of coverage. The main categories of travel insurance include trip cancelation or interruption coverage, baggage and personal effects coverage, medical expense 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. Also, some travel insurance policies may duplicate existing coverage from other providers or give protection for costs that are refundable by other means. 

Trip Cancelation or Interruption Coverage

Trip cancelation insurance, sometimes known as trip interruption insurance or trip delay insurance, reimburses a traveler for prepaid, nonrefundable travel expenses. Providers vary on acceptable cancelation and interruption causes and the amount of reimbursement available. The most common, acceptable reasons include illness, a death in the immediate family, sudden business conflicts, and weather-related issues.

Policies often offer protection if the airline, cruise line, or tour operator goes out of business and may include additional coverage against an act of terrorism and calls for jury duty. A few policies offer “cancel for any reason” coverage at an additional cost.

Trip cancelation is beneficial when paying more upfront than what you're comfortable losing. For example, if you pay $2,000 for a package tour and the tour's cancelation policy stipulates that all but $100 is refundable upon cancellation. The insurance will cover only the nonrefundable $100.  Also, there is no need to protect a refundable airline ticket. 

Baggage and Personal Effects Coverage

Baggage and personal effects coverage protect lost, stolen, or damaged belongings during a trip. It may include coverage during travel to and from a destination.  Most carriers, such as airlines, reimburse travelers if baggage is lost or destroyed because of their error.  However, there may be limitations on the amount of reimbursement.  Therefore, baggage and personal effects coverage provide an additional layer of protection.

The possibility of baggage and personal belongings being lost, stolen, or damaged is a frequent travel problem. Many travel insurance policies pay for belongings only after you exhaust all other available claims. Your homeowners or renter’s insurance may extend coverage outside of your domicile, and airlines and cruise lines are responsible for loss and damage to your baggage during transport. 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.

Short-Term Medical and Major Medical Coverage

The two primary types of medical travel insurance policies are short-term medical and major medical coverage. Short-term policies cover a traveler from five days to one year, depending on the policy chosen. Major medical coverage is for travelers who are planning to take longer trips ranging from six months to one year or longer.

Medical coverage can help with medical expenses, help to locate doctors and healthcare facilities, and even assist in obtaining foreign-language services. As with other policies, coverage will vary by price and provider. Some may cover airlift travel to a medical facility, extended stays in foreign hospitals, and medical evacuation home to receive care.

The U.S. government urges Americans to consult their medical insurance providers before traveling to determine whether a policy extends its coverage abroad. For example, medical insurance may cover the insured in the U.S. and Canada, but not in Europe. Also, some health insurance providers may require prior approval for coverage to remain valid.

Before purchasing a policy, it is imperative to read the policy provisions to see what exclusions, such as preexisting medical conditions, apply and not assume that the new coverage mirrors that of an existing plan.

Emergency medical coverage may be redundant. Most health insurance companies pay “customary and reasonable” hospital costs if you become sick or injured while traveling, but few will pay for a medical evacuation. Note that Medicare does not cover any expenses outside the U.S. 

Also, read Is My Health Insurance Good Abroad?

Accidental Death and Flight Accident Coverage

If an accident results in death, disability, or serious injury to the traveler or a family member accompanying the traveler, an accidental death and flight accident policy pays benefits to surviving beneficiaries.  Flight Accident insurance provides coverage for accidents and deaths occurring during flights on a licensed commercial airliner.  General exclusions will apply such as death caused by drug overdose, death resulting from sickness, et al. 

Accidental death coverage may not be necessary if you already have a life insurance policy. However, 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. 

Purchasing Travel Insurance

Travel insurance will vary by the provider on cost, exclusions, and coverage. The buyer should be aware of reading all disclosure statements before they purchase the insurance. Coverage is available for single, multiple and yearly travel. Per-trip coverage protects a single trip and is ideal for people who travel occasionally. Multi-trip coverage provides protection for numerous trips occurring in one year, but none of the excursions can exceed 30 days. Annual coverage is for frequent travelers. It provides protection for a full year.

In addition to the duration of travelers insurance coverage, premiums are based on the type of coverage provided, a traveler's age, the destination, and the cost of your trip. Standard per-trip policies cost between 5% to 7% of the trip’s cost. Specialized policy riders focus on the needs of business travelers, athletes, and expatriates.

Also, when traveling, it is suggested that a traveler register travel plans with the State Department through its free online service Travel Registration website; the nearest embassy or consulate can contact them if there is a family emergency or a state or national crisis.

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