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10 Essential Rules for Travel Insurance

Some travel experts extol the virtues of travel insurance; others call it a waste of money. Who's right? Both—depending on your circumstances. Here are our essential rules for buying travel insurance.

Trip Cancellation/Interruption

Almost everyone has had to cancel a trip at some point or another, or return home in the middle of a trip for an unexpected reason. Sometimes it's because a traveler suffers sickness or accident; sometimes it's when the problem occurs with a traveling companion or a close family member who remains at home. Trip Cancellation/Trip Interruption (TCI) reimburses you for nonrecoverable deposits and penalties if you have to cancel and the extra costs of returning home early.

1. When to Buy TCI

Buy TCI any time you have more advance payments at risk (net of what you can recover in refunds) than you can comfortably absorb if you have to cancel a trip. This risk is especially great with vacation rentals, cruises, and package tours, where you might lose your entire payment if you cancel shortly before departure.

Also, don't try to "insure" recoverable payments. All TCI is secondary, meaning the insurance pays off only after you've first claimed all other refunds, including credit card refunds that might be coming to you.

If you buy TCI, buy it immediately (within one to two weeks, depending on the policy) after your first payment. That way, you can avoid hassles about medically based cancellations that an insurance company might otherwise be able to blame on a pre-existing condition.

2. Read the Fine Print

Carefully the fine print on any policy you're considering. Policies differ in "covered reasons" that form the basis for allowing any cancellation or return. If an event or condition isn't listed as a covered reason or a "named peril," the policy won't pay.

3. Cancel for Any Reason

If there's any risk that you might want to cancel a trip for a reason that isn't covered or named—especially work-related reasons or general uneasiness about a destination—buy a "cancel for any reason" policy. Those policies are more expensive, and most don't pay 100 percent of your exposure, but you get to decide whether to cancel, not some insurance company bean counter.

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Medical and Emergency

Nobody is immune to sudden sickness or accident, and if either occurs while you're out of the country, you may need medical insurance to cover possible doctor visits, hospitalization, and emergency transport home. Medical/Evacuation (Medevac) pays for those expenses.

4. Check Your Health Insurance Policy First

Consult the travel coverage of your regular health insurance or HMO: Some cover foreign travel, others don't; some cover Medevac, others don't.

If you're traveling outside the U.S. and your regular health insurance doesn't cover foreign travel, buy Medevac. Medicare doesn't cover any expenses outside the U.S., and even supplements that do cover foreign expenses - Plans C, D, F, and G - impose a low deductible of $250 per year that wouldn't take care of a serious problem.

Look for a primary Medevac policy where you can. Most policies are secondary, meaning that you have to pay for the medical services up front and later file a claim for reimbursement. Primary Medevac pays medical bills up front—and that's enough of an advantage that you might want to consider it even if your regular insurance does cover foreign travel.

Consider a separate emergency evacuation policy, but also weigh risks against costs. Companies that specialize in high-value evacuation policies post horror stories about travelers who needed a $50,000 hospital plane charter to get home, but those are very rare cases, and ordinary Medevac includes enough emergency transport to cover most situations.

Minor Coverages

Many travel insurance policies typically include a laundry list of minor coverages: personal property loss/theft, delay expenses, baggage damage/loss, and such.

5. Don't Overpay for Extras

Almost all such travel insurance is secondary—paying off only after you've made all the other claims available to you—and you already have primary coverage from a variety of other sources. Your regular year-round personal property or homeowners' policies typically cover your personal property while you're traveling, airlines and cruiselines are responsible for baggage loss/damage, and your credit card may well cover you for delays, baggage, and such.

Do's and Don'ts

Most travelers buy their insurance in "bundled" policies that combine TCI, Medevac, and some of the minor stuff. TCI is generally available only in bundled policies. Prices for bundled policies depend on destination, duration of trip, and your age. They range from 5% to 15% of your total trip cost—sometimes even more for very senior seniors. If you don't need TCI, however, you can buy Medevac separately. As with TCI, most policy pricing is age-based.

6. Go Independent

I recommend that you buy through one of the several independent online agencies that specialize in travel insurance (see Travel Insurance Agencies, below). They all provide comprehensive search systems where you enter personal information, trip particulars, and the coverages you want, and the system displays all of the policies that meet your needs—with their prices. Obviously, you will generally want to buy the cheapest policy that works for your trip. Don't blindly accept a travel agent's recommended policy, either. Many agencies handle policies from only one supplier, and those policies may not offer your best choices.

7. Beware the Cancellation Waiver

Unless you can't afford third-party TCI from an insurance company, don't buy a tour operator's or cruiseline's "cancellation waiver." People sometimes call it insurance, but it isn't: Instead, the cruiseline or operator agrees to waive the cancellation penalty. But those waivers cover fewer risks, and many limit reimbursement to a credit toward a future booking rather than a cash refund. Similarly, don't blindly accept a travel supplier's "opt-in" insurance option. It may be more expensive than an independent policy, or its coverage may be more limited than you need.

8. When to Consider a Waiver

The only reasons to consider waivers or opt-in insurance are (1) if the price doesn't depend on your age, (2) you're into your 70s or above where age-rated policies become expensive, and (3) if it's a low-fee policy some airlines sell to waive cancellation or refund penalties, where the amount of money at risk isn't large enough to warrant a full independent policy.

Either way, don't let lots of minor coverages sway your purchase. Don't reject a policy because of the extras, but don't let them determine your decision.

Traveling with Insurance

9. Age-based Policies

If you're 65 or over, look for a policy that doesn't base the rate on your age. Age-rated policies can be expensive—very expensive if you're 75 or over.

10. Play by the Rules

Follow the policy instructions in making a claim. Especially when you're already on your trip and need medical services or an early return, don't "wing it" and expect to be reimbursed. Notify the insurance company immediately of your situation and ask the company's representative how to go about making whatever arrangements are necessary. If you bypass that procedure, the policy probably won't pay.

Travel Insurance Agencies

Here's my current list of online, independent travel insurance agencies:

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