How to Avoid Travel Insurance 'Gotchas'

AskEd & AnswerEd
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Editor's Note: This story was originally published on January 12, 2009. To see the most recent SmarterTravel articles on related topics, please click on any of the following links: Alaska, All Nippon Airways, American, AskEd & AnswerEd, British Airways, Continental, health and safety, insurance, Qantas, senior travel, Singapore Airlines, Southwest.

As I noted in my recent "AskEd and AnswerEd," you have to be careful to comply precisely with the fine print in travel insurance if you don't want to risk a denied claim. That report elicited a response from John Cook, President of QuoteWright, echoing my conclusions and pointing out some additional details—details I thought are important enough to pass along to readers. As you might expect, most of the worst potential gotchas and pitfalls deal with pre-existing medical conditions.

The Basic Problem

Repeating the information in my original response, the question of pre-existing medical conditions is central to two key travel insurance issues:

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  • Trip-cancelation and medical insurance policies generally exempt and therefore do not pay claims based on a pre-existing medical condition—illness or accident for which you sought or should have sought medical attention during a specified period prior to your insurance purchase. That period varies by company and policy; typically it's 60, 90, 120, or 180 days.
  • Many policies waive this exemption if you (1) buy enough insurance to cover the full nonrefundable portions of your trip and (2) buy it within a few days after you make your initial deposit. That purchase deadline varies by company and policy; typically, it's 10, 14, or 15 days, but a few policies allow you as little as 24 hours and a few as much as 21 days. And some policies—which you should avoid—don't waive the exemption at all.

The Fine Print Applies to Everyone

Most trip-cancelation policies cover cancelation when something happens not only to you but also to someone else in your travel party or a close family member who is not traveling. That's a valuable protection, because even through you might have no pre-existing medical problems, you might well have to cancel your trip because someone close to you falls ill or suffers an accident due to a pre-existing condition.

But the corollary to such coverage is that the limitation on pre-existing medical conditions applies to anyone on whom you might base a cancelation claim, not just to you. That fact clearly reinforces my earlier conclusion: No matter what your personal health situation, you're extremely foolish to buy travel insurance without buying early enough to get the exemption for pre-existing conditions waived. The waiver doesn't increase your cost; all you have to do is buy within the insurance company's time window.

Insure to Your Full Exposure Level

As indicated, most policies require that you buy enough insurance to cover your full financial exposure in the event you have to cancel—the full amount you have potentially "at loss" if you cancel. You can't insure just part of the total risk and expect the policy to pay off on just that part; it's either all or nothing.

According to Cook, some problems have occurred in the interpretation of the way "financial exposure" applies to "nonrefundable" airfares. Although labeled nonrefundable, most airlines allow you to apply the monetary value of a canceled ticket toward a future trip, less an exchange fee of up to $150 per ticket. Apparently, some companies ask for insurance covering the full face value of the ticket, but others accept a claim that only the exchange fee is really "at loss." As far as I can tell, there is no standard language either way in typical insurance fine print: The issue may be solved only through negotiation and possible litigation.

Don't Round Down

One of the biggest mistakes travelers make when they buy insurance is to round the total price down slightly to fit into the next lower premium bracket. Most bundled policies are priced on the amount of your prepayments, in $500 increments. Thus, for example, if your actual prepayments are $6,120, your price is based on the rate for prepayments of $6,000 to $6,500. Don't round your figure down to $5,999 to shave a few dollars off the price of the policy: If you do, the insurance company can deny your entire claim.

Black List, White List

As I've noted elsewhere, the current economic crunch is likely to lead to more failures of travel suppliers than we've seen in the last few years. And although many cancelation policies cover supplier failure, some exclude suppliers widely known to be in financial problems:

  • The easiest policies to deal with are those that specify a "black" list of suppliers they won't insure. That includes CSA, at least some of the policies from HTH, Travel Guard, Travelex, and TravelSafe. Although some of the posted lists are seriously outdated—including companies that failed more than a year ago—at least they're comprehensive. Unfortunately, it also includes some airlines that are successfully operating while in bankruptcy,
  • More troublesome is Access America, which specifies only the suppliers it does cover. Unfortunately, that's a highly restricted list: As currently posted, for example, the only airlines on the list are Alaska, American, British Airways, Continental, Nippon (presumably the company means All Nippon), Qantas, Singapore Airlines, and Southwest.

In any case, an insurance company is likely to deny a supplier failure claim if that supplier has been widely reported as in financial trouble. The standard here seems to be what a prudent person would decide.

Researching the Fine Print

QuoteWright's homepage includes an extremely useful research tab that makes it easy for you to compare these fine print specific issues among various suppliers.

I examined websites of the other seven online agencies I normally list as sources for travel insurance and didn't find anything similar. But the fact that I can't find something on any website doesn't necessarily mean it isn't there, just that I can't find it.

Keep in mind that travel insurance doesn't ever cover the failure of the organization that sells you the insurance. That's why I recommend against buying travel insurance from a tour operator, airline, or cruise line. Fortunately, the several big online agencies provide an easy way to compare and buy policies from all the major issuers:

 
 
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