12 Glitches in Travel Insurance

Covered Reasons

Conventional TCI/TII policies all contain a laundry list of occurrences that the insurer will accept as reasons for cancellation; these vary from policy to policy. Covered reasons include a wide range of sicknesses and accidents—breaking a leg or coming down with pneumonia, for example—that could befall you, your traveling companion, or a close relative at home. They also usually include unexpected events such as a fire at your home or a call to jury duty. But they seldom include anything even remotely foreseeable, such as elective surgery, or risky behavior, such as downhill skiing. The rule is simple: If it isn't listed, it isn't covered, so check policies carefully.

Minimizing the Risk: Buy a "cancel for any reason" policy, but see item 7 for glitches in those.

Named Perils

Like covered reasons, events that can trigger cancellation or interruption are named and listed in contracts. Included are force majeure events, such as hurricanes or floods, and political events, such as terrorist attacks. But some policies are pretty restrictive: They may not allow a cancellation for terrorism or upheaval unless the State Department has actually issued an official warning. Very few, if any, cover general civil unrest like what has been happening in Greece and Egypt recently. The rule is simple: As with covered reasons, if it isn't listed, it isn't covered. And check policies carefully, as named perils vary from policy to policy.

Minimizing the Risk: Buy a "cancel for any reason" policy.

Financial Default

Most TCI/TII policies cover default of a supplier. But the definition of "default" is pretty narrow: namely, if the supplier quits business entirely. Some policies cover just "bankruptcy" rather than "default," which can be a problem since many failed suppliers never get around to filing bankruptcy. Also, the default condition does not apply if a supplier has to cut back operations due to a financial problem but stays in business. Other coverages in the policy may include these instances, but you can't be sure. And default policies never cover default of the supplier from which you buy the insurance.

Minimizing the Risk: Get a policy with the broadest definition of "default," and never buy insurance through your travel supplier.

Destination Problems

Most policies allow you to cancel for weather or similar reasons only if your airline stops flying to your destination or your hotel is "uninhabitable." For example, as long as your golf-resort hotel is habitable, the insurance won't cover cancellation because the golf course is ruined.

Minimizing the Risk: Get a policy with the broadest definition of "destination problems," but recognize that you can't completely avoid this risk.

Preexisting Medical Conditions

Most ordinary TCI/TII and medical insurance excludes coverage for a preexisting medical condition: a sickness or condition for which you received treatment within a certain period, usually 60 to 180 days, before you purchased insurance. Depending on the policy, this can mean a condition for which you showed symptoms that would have prompted a reasonable person to seek diagnosis, care, or treatment; for which care or treatment was given or recommended by a physician; or that required the taking of prescription drugs or medicines.

Minimizing the Risk: Most insurers waive this exclusion if you buy the insurance within a short period of time—a few days to two weeks, depending on the policy—from the date that you make your first prepayment or deposit. This protection costs nothing, and it avoids the most common cause of disagreements between travelers and insurers.

Foreseen Conditions

Even if you take advantage of a preexisting-conditions waiver, an insurer can still deny your claim for a loss due to a preexisting condition that is foreseeable at the time you buy the policy. If, for example, a close family member has previously been diagnosed with late-stage terminal cancer, you probably can't cancel your trip because that person suddenly gets worse or dies.

Minimizing the Risk: You can't change these rules; just be aware of them.

Cancel for Any Reason

Although relatively new, many insurers now offer optional "cancel for any reason" or "cancel for work reasons" policies. For many travelers, unexpected work demands are the most likely reason to cancel, and these policies avoid that risk. Similarly, if you want to cancel because of civil unrest in your destination, you can. But these policies are a bit different from ordinary policies: They only allow cancellation up to 48 hours prior to departure, some offer only 75 percent or 90 percent coverage, and most are more expensive than conventional policies.

Minimizing the Risk: You can't do much beyond what is allowed in the policy.

Secondary Coverage

Many elements of travel insurance are secondary, meaning the policies pay for only what you can't first recover from your suppliers and your other insurance. With TCI/TII, you have to seek as much of a refund as you can from your airline, resort, cruise line, vacation rental, or whatever. With medical expenses, you have to claim from your own insurance first (if it covers you overseas), and you might have to front the money for emergency care on the spot and later claim reimbursement from your own insurance. With personal effects (like clothing and toiletries), baggage, and such, you may first have to claim from your carrier and your own insurance.

Minimizing the Risk: Some policies provide primary medical, personal-effects, and other coverages—much preferred to secondary policies.

Follow the Rules

TCI/TII and medical insurance both require that you follow the rules. Specifically, that means you have to let the insurance company make all the necessary arrangements, including choosing the physician and hospital, arranging return transportation, and lots of other details. The travel-insurance industry is full of legends about travelers who made their own arrangements—and didn't get paid.

Minimizing the Risk: Easy—just do what the policy says.

Full Payment

If you cover less than the full cost of your trip—even if you just "round down" your prepayments—some policies will invalidate the entire coverage. Most policies require that you cover the total nonrefundable portion of your trip, including payments that really don't worry you, and a few require that you cover the total trip cost, including refundable deposits.

Minimizing the Risk: Check the fine print of any policy you're considering, and avoid those that require you to cover refundable payments.

Age-Based Pricing

Most TCI/TII and medical-insurance rates depend on your age. Rates start to rise rapidly for travelers 70 and over.

Minimizing the Risk: The big online insurance agencies automatically price your quote to your age—and unless you pay a lot, you may have to give up the waiver of preexisting medical conditions. Also, a few policies are not age rated, although those policies typically have a maximum age. Supplier waivers are usually not age rated, so even if their coverage is inferior to third-party policies, they may be your only practical choice if you're in your 70s or older.

Save My Trip

Like most insurance, TCI/TII is about money and only money. It can't preserve your vacation or arrange or pay for an alternate trip. And because so much TCI/TII is secondary, even if it covers your claims, you could be paying out of pocket for months and might have to pay up front for any substitute arrangements.

Minimizing the Risk: Even if you buy insurance, have a "plan B" in mind in case something goes wrong with your original trip.

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• Travel Insurance 101: What to Know Before You Buy
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