Travel Insurance: What You Really Need

Travel insurance isn't necessary if you have no money to lose. Dreamstime/TNS

You’ve probably seen a lot of stories explaining why you need travel insurance. They concentrate on speculating about all the really bad stuff that might happen before or during your trip. Although the bad stuff is important, focusing on it is misdirected: You need travel insurance for only one reason—money.

Insurance is all about money. It can’t stop a war or quiet a volcano, all it can do is make sure that you don’t lose money due to that war or volcano. So the formula is simple: If you have more money at risk than you can comfortably walk away from if something bad unexpectedly happens, you need insurance. If you don’t have money at risk, fuggedaboutit.

Most of you face two big potential money risks—risks that could amount to many thousands of dollars:

• Loss of nonrefundable prepayments and deposits if you have to cancel a trip before you leave home or while you’re traveling because something bad happens to you or a family member. These days, many airfares let you retain the value if you cancel, but cruises, tours, vacation rentals, and many resort hotel packages involve totally nonrefundable advance payments or stiff cancellation penalties. Trip-cancellation/trip-interruption (TCI) insurance covers the risk of losing those payments if you have to cancel.
• High transportation costs if you suffer an accident or illness during a trip that necessitates special transport home. Travel medical insurance (Medevac) covers you the costs of repatriation, as high as the cost of a private jet, if you can’t get home the way you arrived. It also covers hospital and doctor costs if your regular health insurance doesn’t cover you while you’re traveling. This is especially important for seniors who depend on Medicare, which does not cover outside the United States.

Many forms of travel insurance cover nuisance items such as a hotel bill if your air connection is canceled or buying stuff you need if your baggage is lost. But in total dollar risk, these items are chump change—and your regular insurance or credit card may cover them, anyhow.

You need to know a few technicalities of travel insurance, as well:

• Travel insurance is “named peril” insurance: It pays only if the bad stuff that happens to you is specifically included in the fine print.
• Travel insurance covers only unexpected bad stuff. It won’t cover a volcano eruption if the volcano is erupting at the time you buy the policy. And it won’t cover you if grandma dies due to an illness she was suffering when you bought the policy.
• Most policies exclude coverage if anyone covered by the policy cancels because of a pre-existing medical condition. Many policies, however, waive that exclusion if you buy a policy covering the full value of your trip with a week or two of the time you make your first payment.

A comprehensive bundled policy, including both TCI and Medevac, usually costs 5 percent to 15 percent of the total trip costs. The price of most such policies is based, in part, on your age, with rates getting very high past age 70.

You can buy “cancel for any reason” TCI, often as an add-on to a regular policy, in effect removing the “named peril” limitation. It usually won’t cover the full amount—maybe 50 percent to 75 percent—but it lets you decide when to cancel.

You can, of course, avoid the big money risks entirely: Don’t have any money in the game up front. Over the last few years, I’ve never needed TCI because I never had any big bucks at risk: I’ve been flying on frequent-flyer miles, which I could redeposit if I had to cancel, and made only no-deposit hotel reservations. But you can’t do that with cruises, vacation rentals, and many tours.

If you need travel insurance, don’t blindly take whatever your airline, cruise line, or tour operator suggests; instead, check the big online travel insurance agencies that publish elaborate side-by-side comparisons of different policies, including insuremytrip.com, quotewright.com, squaremouth.com, and others.

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