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Travel Insurance: The Two Big Complaints

When you start to look at the subject of travel insurance, you find a bimodal distribution among both consumers and travel mavens: Some say it's a scam; others say it's indispensible, at least for some trips. Count me in the second group. My overall take for decades has been that trip-cancellation insurance is a valuable protection any time you face lots of cancellation penalties and that travel medical insurance is a good idea for many travelers.

I agree, however, that many travelers believe that travel-insurance companies cheated them out of promised benefits. A recent release by my go-to authority on travel insurance, QuoteWright's John Cook, helps shed some light on the problem.

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The number-one cause of disappointment (often rage) over travel insurance has been the denial of claims—for cancellation, interruption, or medical expenses—due to a traveler's "preexisting medical condition." Most policies include blanket exclusions for preexisting medical conditions. Typically, preexisting conditions may be defined as any medical condition for which the traveler has seen a doctor within a period of three to six months prior to buying the insurance. That can be pretty draconian, and insurance company bean counters love draconian. Many policies cover cancellation or interruption due to a problem experienced by a traveling companion or by relatives who remain at home, and the preexisting conditions exclusion may apply to them, as well.

Fortunately, however, you can get around a large part of the problem. Most good travel insurers waive this preexisting exemption, provided:

  • You buy the insurance within a set number of days—typically 10 to 30 days—within making the first payment or deposit for your trip.
  • You be physically able to travel at the time you buy the insurance and cannot foresee any specific upcoming problems.
  • You insure the entire amount of money you have at risk in prepayments.

According to Cook, that last one "causes the most heartache." With most policies, you can't insure just part of your risk, and if you underinsure, even just by "rounding down," many companies can deny your entire claim. Moreover, as far as I can tell, policies vary in terms of whether you have to cover the total outlay or just the outlay for nonrefundable services.

The number-two cause of complaint is about the denial of claims when something actually happens that requires you to cancel or interrupt a trip. As Cook points out, trip-insurance policies are "named peril coverages," meaning that they reimburse you only in the case of an event or occurrence specifically included as a "covered" reason in the policy fine print. You experience lousy weather at your golf resort? No coverage unless the resort actually has to close down or the airline can't fly there. Street demonstrations in a city you plan to visit? No coverage unless the city suffers an actual "terrorist" act. Hardly any policies cover cancellation for work reasons.

Taken together, these two problems are why I recommend policies that include a "cancel for any reason" provision. That way, you decide whether to travel, not an insurance company bean counter paid to figure out ways to deny claims. Yes, any-reason policies are usually more expensive than conventional policies, they don't cover any-reason cancellation within the last 48 hours before scheduled departure, and most of them pay off less than 100 percent of the value. But the any-reason provision is an add-on to a conventional policy, not a substitute: If you cancel for a "covered reason," you get the full recovery; the any-reason option kicks in only when your reason isn't covered.

Travel insurance remains a complicated issue. One of the best sources of further information I know is Travel Insurance Ratings and Reviews, an online resource maintained by Cook. As an agent, he obviously carries favorable bias to insurance, but his company arranges policies with all the big insurers and he is unbiased in recommending policies he prefers. Check it out if you're at all unsure about whether to buy insurance for your next trip.

Ed Perkins on Travel is copyright (c) 2013 Tribune Media Services, Inc.

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