In several recent responses, I’ve emphasized the difference between primary and secondary insurance provisions. A reader recently asked:
“Why are you so hot for primary travel insurance, especially when it’s often a more expensive option?”
The short answer is, “Because it avoids a lot of hassle and potentially avoids paying twice for the same coverage.” And it’s one area where I do not always agree with the conventional wisdom of consumerist travel writers.
What’s the Difference?
No matter what sort of insurance you’re considering, you find an important difference between the two types of coverage:
- Primary insurance covers your claim regardless of what other coverage you might have, and the primary insurer is first in line to pay whatever bills may be due. With primary insurance, you don’t have to involve any other insurance source—or deal with any other insurance representatives—in the settlement of a claim.
- Secondary insurance covers only what you can’t recover first from other sources—your own insurance, travel suppliers, or whatever. You must first make all the claims available to you; only then can you claim on secondary insurance to cover anything else.
As a traveler, this difference plays out for you in three important forms of insurance—rental car collision damage, travel medical, and trip cancellation.
All of us consumer travel writers agree that a rental car company’s collision damage waiver/loss damage waiver, or CDW/LDW, is grossly overpriced and provides a fat markup for rental companies. That’s why the rental companies push it so hard—occasionally resorting to deceptive claims to scare you away from alternatives.
Most consumer writers also recommend flatly that you rely on your credit or charge card to cover you for collision damage to a rental car—a “free” benefit that most premium cards now offer. I no longer agree. The problem is that, for rentals in the U.S. and Canada, most cards provide only secondary coverage. So if you damage a rental car, you must first make a claim against your regular auto insurance. Making such a claim means more than just the extra paperwork: The damage claim will count against your driving record, and the amount of the claim will probably be much higher than had you inflicted the same damage to your own car. The result, for most of you, will be higher rates for the foreseeable future, to say nothing of possible protracted negotiations between your insurance company and credit card issuer.
Instead, these days I recommend that you rent with a card that provides primary coverage. All Diners Club cards offer primary insurance as standard, and you can convert the usual secondary AmEx coverage to primary by paying a flat fee of $24.95 per rental ($17.95 for Californians), regardless of duration. Obviously, that’s not a good deal for a one-day rental, but it makes sense for longer rentals.
As far as I know, only a very few MasterCard and Visa cards offer primary insurance as standard, and I know of no issuing banks that offer a conversion option such as AmEx does. So if you use Discover, MasterCard or Visa, you either have to roll the bones with the risks of relying on secondary coverage or paying the outrageous price for CDW.
Fortunately, when you rent in Europe, you don’t have to worry about your card’s primary/secondary distinction. Because your own auto insurance almost certainly doesn’t cover you outside the U.S. and Canada, all coverage in other countries is de facto primary.
If you rent frequently in the U.S., the primary collision coverage is probably reason enough to apply for a Diners Club card—which acts as an ordinary MasterCard in most other ways. You’ll cover the annual cost of the card in just a few rentals. For my own travels, I use AmEx with the conversion option for rentals in the U.S.
Travel Medical Insurance
The other area where you’re likely to encounter secondary insurance is with the medical component of travel insurance on foreign trips. Many of my colleagues simply recommend that you buy the “least expensive policy that meets your needs,” a recommendation I formerly made as well. But not now. Most travel medical policies provide secondary coverage only, which leads to two problems if you run up doctor or hospital charges while you’re traveling:
- Even though your regular medical insurance covers you outside the U.S., you must pay the bill yourself and claim the reimbursement later. Because foreign medical institutions typically demand payment up front, you may have to come up with a really big cash outlay on the spot.
- Paying before claiming can lead to some serious disagreements about whether you follow all the necessary guidelines.
With primary medical coverage, your insurance carrier gets involved immediately, dealing directly with doctors and hospitals. You needn’t get involved with the payment process at all.
Yes, it’s a bit of a stretch to include
trip-cancellation in this primary-secondary discussion, but some of the issues are very similar. And here, my colleagues are not unanimous: Some recommend that you buy comprehensive travel insurance on every trip and some wonder if it’s worth it. Here I come down firmly in the middle:
- Almost all trip-cancellation insurance is secondary, meaning that you can claim only the amount you spend out-of-pocket after you claim all of the refunds that are available to you. For this reason, I recommend trip-cancellation only when you have a big up-front payment—for a cruise or vacation rental, for example—that entails a hefty cancellation penalty or maybe allows no refunds at all. You can never be certain something won’t unexpectedly require you to cancel or change a trip, and unless you’re willing to walk away from your nonrefundable advance payments, you need insurance.
- Most trip-cancellation policies limit refunds to “covered” reasons—typically medical, plus a few additional circumstances. However, whether your reason is covered or not can sometimes lead to protracted arguments. For this reason, I recommend that if you buy trip-cancellation, you should buy an “any reason” policy, which avoids any arguments.
Secondary limitations also apply to other travel insurance components—baggage loss or damage, delay expenses, and such. You can claim only what you can’t first recover from the airline/cruise line involved or from your own personal property insurance. That’s why I recommend against buying all those minor coverage, unless they come as part of the least expensive policy you can find that covers your basic medical and cancellation needs.
Yes, it Costs More
Clearly, whether you’re talking about rental car or travel insurance, you typically have to pay more for primary coverage than you’d pay for secondary. But with secondary coverage, you may find that your policy winds up paying you nothing at all—to say nothing about the arguments that can involve you. My recommendation is, “Go primary or forget it.”