How to self-insure a vacation

Today, if I were to book a summer trip to Europe for two, costing $4,300 total, trip-cancellation insurance from most major insurers would cost between $500 and $850. That's at my current age (77). If I were five years older, it would cost $650 to $1,200. That's why, in a recent newspaper Q&A column, I was quoted as recommending that senior travelers consider "self-insuring" cancellation when trip insurance gets too expensive or when they can't get it at all. The column didn't elaborate, and I suspect quite a few of you would like to know just what I meant by self-insure and how to do it.

When corporations self-insure, they segregate what they would otherwise pay to an insurance company into special accounts. Once those accounts reach levels high enough to cover the risks, they stop paying into them. And when the need arises, the money is there to cover whatever the risk might be. I don't see many senior travelers doing that, although it's certainly possible. Instead, the best way for most of us to self-insure is to reduce the risks of cancellation to an acceptable level.

Package tours and cruises

Package tours and cruises usually require prepayment in full, well in advance of departure. Many months may elapse between the time you pay and the time you actually start your trip—months in which you could encounter all sorts of travel impediments. That, of course, is why trip-cancellation insurance (TCI) is so popular. Certainly you could just forego the TCI. But you run a big risk when you prepay months in advance.

Obviously, if you want to avoid high TCI costs, the best way to reduce your risk is not to prepay months in advance. Instead, wait until a few weeks before you want to start your trip to make the arrangements. Fortunately, you'll find an active marketplace for last-minute tours and cruises throughout the industry. All the big online agencies—Expedia, Hotwire, Orbitz, Travelocity and such—feature last-minute specials, as do the cruise outlets. Most airline tour departments do the same. And if you're not booking online, your travel agent will have a long list of possibilities for you.

This strategy demands a certain amount of flexibility. You might not get exactly the tour or cruise you want. But you'll have enough attractive possibilities to satisfy just about anyone.

Vacation rentals

The situation with vacation rentals can be even tougher. Some properties rent out up to a year in advance, and if you cancel, you may forfeit the entire prepayment. Here, again, your best alternative is not to reserve and pay until just a few weeks before departure.

The risk of disappointment in a vacation rental is a bit higher than with a tour or a cruise. However, my experience has been that you can usually find an attractive vacation rental on short notice, provided you travel off-season.

Airfare

You're almost certainly stuck with nonrefundable air tickets: The refundable ones usually cost several times what you pay with minimum-price tickets. But those lowest-priced air tickets almost always require advance purchase, and since seats are limited, you usually have to buy well ahead of time.

Fortunately, although most of those low-priced tickets are nonrefundable, they're generally reusable—if you have to cancel, you don't get your money back, but you can retain the value of your ticket and apply it toward a future ticket, usually less a fee. The typical fee is $100, but a few airlines, notably Southwest and JetBlue, charge a lot less.

Clearly, then, you must be careful to buy reusable tickets. Some discounted consolidator tickets are both nonrefundable and nonreusable—you have to avoid those.

Overall, if you insist on booking early to get exactly the vacation you want, you're probably stuck buying TCI, regardless of the cost. But if you're willing to be a bit flexible, you can avoid most of the risks and costs, too. Of course, you may still need medical coverage, but that's less expensive without the TCI.