No matter where you get your information on travel, you have surely been bombarded with “tips” that you need to buy travel insurance. Maybe yes, maybe no. What you should do for sure is review your plans carefully to see whether you need travel insurance, and if you do, figure out exactly what you need—what kind to buy and where to buy it. I'll try to help.
Money, not experience. Like almost all insurance, travel insurance is designed to insulate you from the risk of losing money. It can’t either avoid or fix a problem; all it can do is make sure you don’t lose a lot of money when a problem arises. When you plan a trip, you face three big financial risks—maybe adding up to thousands of dollars—if your plans are disrupted:
Cancellation
If you have to cancel a trip before you leave home, you risk losing prepayments and deposits that are either totally nonrefundable or carry a big cancellation penalty. Trip-cancellation insurance (TCI) addresses these risks.
– TCI covers you if you, a traveling companion, or a close family member who remains at home suffers an accident or becomes sick before or during your trip. Many policies exclude problems arising from a pre-existing medical condition, but you can usually waive that limitation by buying insurance within a week or two of making your first payment.
– TCI also covers you if a specified event at your destination prevents you from visiting.
Interruption
If something happens during your trip that requires you to return early, you may have to pay a lot for new tickets and arrangements. Trip-interruption insurance (TII) addresses these risks.
Cancellation and interruption are almost always combined into a bundled policy. And, like most travel insurance, it’s “named peril,” which means it pays only for contingencies that are (1) specifically listed in the contract and (2) unforeseen at the time you buy insurance.
Medical
If you suffer an illness or accident during your trip that requires visiting a hospital, seeing a doctor, or special medical transport—and if your regular health insurance doesn’t cover you—you could be looking at big medical bills or the cost of an emergency flight. Travel medical insurance addresses these risks. You may not need it if your regular health insurance covers you when you’re away from home. But Medicare doesn’t work outside the U.S. and although most Medigap policies Plan C or higher offer a foreign travel benefit, there’s a $250 annual deductible and 20 percent co-payment.
Recovery. Most TCI, TII, and medical travel insurance is secondary, meaning it pays only what you can’t first recover from other sources. But the current status of airfare refundability leaves a question. These days, even though the lowest-priced tickets are nonrefundable, if you have to cancel a trip, many tickets allow you to retain the cash value as a voucher/credit toward a future trip. So does that credit amount to a recovery of your payment? I asked John Cook of Quotewright about this, and he explained that—one way or another—to assure a refund through TCI you’re not supposed to use any future credit. Exact terms vary by company: Some ask you to surrender/terminate the credit, some ask you to sign a pledge that you won’t use it, some make you wait until the credit expires, and they often say they‘ll check. So far I haven’t seen any litigation on this issue, but I’ll follow it.
When it’s Essential. Any time you face a potential loss that’s more than you can comfortably walk away from, you probably need some combination of TCI, TII, and medical insurance. You also face small losses for minor glitches such as meal and overnight hotel expenses if your flight is canceled or delayed or buying substitute clothing and toiletries if your baggage is delayed. These risks are annoying but usually of limited dollar value: You can cover them with insurance, but in many cases, why bother?
Next time: buying travel insurance.
