Will Insurance Cover Nonrefundable Payments?

Chances are that if you had booked a tour to Bangkok for this spring, you're having an "agonizing reappraisal" right about now. Or if you're already there, you're thinking about avoiding the local hassle by going somewhere else or going home early. If so, you'd have lots of company: Because of widespread political unrest, hotel revenues in central Bangkok are down 40–50 percent. How about a tour to London for next week, facing the prospect of another 48-hour complete strike on the Underground? Or a flight inside Europe threatened by the likely strike by French air-traffic controllers? Whether or not some of these problems are resolved by the time you read this, many of you are wondering whether travel insurance would allow you to recover nonrefundable prepayments and cancellation penalties if you decided not to go under these or similar circumstances elsewhere.

The short answer, in most such cases, is "probably not, unless you bought a cancel-for-any-reason policy—and maybe not then, either." Two almost universal conditions in almost all travel insurance limit your chances for recovery.

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Named Peril: Most travel insurance won't cover you for either cancellation or interruption for any reason that isn't specifically named as a "covered reason" in the policy. As usual, I relied on Quotewright's John Cook for the facts, and he answered that most cancellation/interruption policies don't cover either civil unrest or a transit strike.

You can cancel because of "terrorism" at your destination, but even that can be limited. Different companies use varying definitions of "terrorism"; most say an act of violence resulting in loss of life or major damage, a few limit coverage to incidents declared to be terrorism by the U.S. government, and some limit coverage to attacks carried out by a person acting in connection with a generally recognized terrorist organization.

  • Some terrorism coverage is time sensitive, requiring that you buy the policy within a specific time following the trip's initial deposit.
  • Most policies cover cancellation/interruption only if a "terrorist incident" occurs within seven to 30 days of your expected arrival at a city that is on your itinerary; earlier incidents and problems in other cities don't qualify.
  • Some cover you only if the U.S. Department of State issues a travel warning after you buy your policy.
  • Some policies exclude coverage if a "terrorist incident" has occurred within the city or country within six months of the time you buy your policy or if the State Department had issued a warning.

All of the fine print I've seen specifically excludes incidents of civil unrest and riots. Thus, says Cook, policies did not cover the ongoing outbreaks of unrest in Egypt.

Strikes: Although many policies cite strikes or labor disputes as covered reasons, most apply only to strikes that shut down your common carrier completely—mainly your airline or cruise line—or render your destination accommodations uninhabitable. Transit strikes don't count.

Foreseeable: As far as I can tell, all named peril policies exclude cancellation/interruption compensation even in the event of a covered reason, if that event was foreseeable at the time you made your payments. Thus, if media reports indicate that travel to certain areas might be risky, terrorism is foreseeable and is therefore not covered. Similarly, you can't prepay your trip early, then belatedly buy insurance only if your destination subsequently experiences a problem.

What to Do: For several years, I have urged that if you buy insurance at all, you buy a cancel-for-any-reason policy. Those policies are usually more expensive than conventional policies, and some of them pay off less than 100 percent of your prepayments and penalties. But they have one big advantage: You, not the insurance company, make the go or no-go decision, up until (usually) 48 hours before your scheduled departure.

Ed Perkins on Travel is copyright (c) 2014 Tribune Media Services, Inc.

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