Whether or not you ultimately need or buy travel insurance, it’s a good idea to consider circumstances that could require insurance from the outset of your planning. Answering these five common questions about major financial risks of travel might help you determine whether you need insurance.
Travel Insurance Question #1: What Could Go Wrong?
There are two main worst-case answers to this travel insurance question: First, you have to cancel a planned trip ahead of time. This could be for a variety of reasons: Maybe you, your travel companion, or someone important at home gets sick or is injured; maybe a hurricane or a terrorist attack hits your destination before you’ve left; maybe something else you didn’t foresee occurs. Obviously, you have no way of predicting the chances of any such event, so know that the chances of this happening are ever-present.
Second, you could have to abort a trip after you’ve started it. The same reasons that could make you cancel in advance could also make you return home early, which could incur extra costs. In an extreme case, you could be so sick or injured that you require airlift to a hospital or back home.
Then there’s some smaller stuff. You could lose expensive personal items on your trip, or they could be stolen. Or, you might have to cover expenses during an extended airline delay or hotel mishap.
Travel Insurance Question #2: How Much Could I Really Lose?
The most common financial loss (without travel insurance) is prepayments. Even if you have time to cancel, your financial risk depends on how you arranged your trip: You typically have to prepay in advance for many, if not most, big-ticket trip components—a cruise, vacation rental, resort stay, tour package, and such—and incur substantial penalties if you cancel. In some cases, you may get nothing at all back, but even if you can get a partial refund, it may be less than half of what you paid if you cancel shortly before departure. That refund may also be limited to a voucher for future travel, rather than cash. Your out-of-pocket risk could be thousands of dollars.
Then there are extra travel expenses that pop up in an emergency. If you have to abort mid-trip, arranging an early flight home could entail cancellation fees and higher last-minute fares or change fees.
The most extreme loss could be the cost of an emergency medical transport. Travelers face potentially disastrous charges for emergency healthcare issues that occur abroad—your U.S.-based health insurance typically won’t cover these. There’s no way to estimate your exposure here; you just know that while it’s unlikely to happen, it could be a very big loss.
Travel Insurance Question #3: What Kind of Coverage Do I Need?
Trip-cancellation insurance (TCI) covers prepayments that you can’t recover if you have to cancel a trip in advance. TCI is a “named peril” insurance, which means it pays off only when you cancel for one of the covered reasons specified in the policy’s fine print. Typical TCI provides coverage with sickness and accidents, but is more restrictive about other possible reasons to cancel. I recommend TCI that has a “cancel for any reason” provision: It can be more expensive, but at least you maintain total control over the decision about whether to cancel.
Trip-interruption insurance (TII) covers the costs of an early return by normal means. It also covers single-supplement costs for a tour or cruise, in the case that your traveling companion has to return home but you complete the trip by yourself.
Medical and Emergency Evacuation insurance (Medevac) covers costs of hospitalization and medical treatment when you’re traveling. It covers the costs of extraordinary transportation assistance, from the site of an accident or onset of sickness, to a hospital, and back home.
Travel Insurance Question #4: How Much Will It Cost?
Most travelers buy bundled policies with TCI, TII, and Medevac as components of a comprehensive travel insurance package, which often includes some of the small stuff as well. You need to buy a separate policy for each individual trip. Typical packages start at around five percent of the total trip cost for a bare-bones policy, and can cost as much as 15 percent for a gold-plated policy. Prices vary not only by coverage amounts, but also by your age and where you’re going. Rates for seniors age 75 or over are much higher than those for young and middle-aged travelers.
The typical insurance bundle includes enough Medevac that most travelers don’t need to buy extra. But, if you don’t need the TCI or TII, you can buy Medevac-only for about half the price of a bundle. If you travel a lot, know that you can buy Medevac coverage by the year rather than by the trip.
Travel Insurance Question #5: Is It the Only Option?
No. You can avoid or mitigate risk without buying separate trip insurance in a variety of ways:
- Premium Credit Cards: You may already have enough risk coverage for a trip. Some premium credit cards include sufficient insurance. Your regular health insurance may cover you while you’re traveling, even outside the country. Medicare doesn’t work outside the U.S., but supplements in Group C and higher include modest foreign-travel coverage.
- Book in Pieces: Avoid cancellation penalties by booking cancel-friendly trip components separately, rather than through a third party with a hard deadline on cancellations. Your main risk is an airline ticket-change fee, which is often unavoidable once it’s been 24-hours after you’ve made the booking.
- Cancellation Policy Waivers: Cruise lines and tour operators sometimes offer an alternative to TCI/TII in the form of waiving their cancellation penalties. It’s often cheaper than true insurance, but it’s also a lot less comprehensive. I recommend this mainly for seniors who would otherwise have to pay punitive rates for insurance.
- Personal Item Losses: Your homeowners’ or renters’ insurance might cover loss or theft of items you take on a trip. To boot, your credit card may cover some of the small stuff such as lost baggage and flight delays.
Overall, you should always consider insurance when you can’t avoid making big-dollar prepayments and deposits that carry big cancellation penalties—especially when you have to pay well in advance. If you can’t afford to walk away from those penalties if something goes wrong, you probably need TCI/TII. And depending on the nature of your trip, you may need extra Medevac. But on most trips, true insurance can often be an unnecessary expense that just gives you peace of mind.
When you do want insurance, I recommend to buy it through a specialized travel insurance agency. These agencies all post online search systems where you input your personal and trip details and what kind of coverages you want. The system searches policies from dozens of insurance and returns your options in an easy-to-compare display. Among them are insuremytrip, SquareMouth, and TravelInsurance.com.
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Consumer advocate Ed Perkins has been writing about travel for more than three decades. The founding editor of the Consumer Reports Travel Letter, he continues to inform travelers and fight consumer abuse every day at SmarterTravel.