Should You Buy Travel Insurance?

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By Jessica L. Anderson | From Kiplinger's Personal Finance, August 2013

Vacation protection can make sense, but know what it does and doesn't cover.

Hurricane season is upon us, which means a tropical storm could be brewing just as you’re about to leave on vacation. Is travel insurance the solution?

See Also: Are You Covered?

Probably not. Unforeseen events are typically covered, but foreseen (or foreseeable) ones are usually not. A tropical storm being tracked is a foreseen event. So if you cancel your trip to Puerto Rico because you’re worried the storm could turn into a hurricane as it blows through San Juan, you won’t be reimbursed.

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Commonly covered reasons for cancellation include death or illness (yours or a close family member’s, as long as you have a doctor’s note or death certificate), a layoff at work, a terrorist incident in your city or destination, storm damage that makes your destination uninhabitable, and bankruptcy of a travel supplier. Pre­existing medical conditions are covered if you buy coverage within a week or two of booking your trip. After that, they’re considered a foreseen illness and excluded.

You will be reimbursed only for nonrefundable expenses. If the airline rebooks you at no charge or the cruise operator gives you a voucher for a canceled trip, you won’t be reimbursed. Save your receipts and any documentation of the reason for canceling; you will need backup when you make a claim.

Reasons to Buy

If you understand what is and isn’t covered, you can insure your nonrefundable costs so that you can afford to reschedule. You can compare dozens of policies at InsureMyTrip.com and SquareMouth.com. Package policies, which run about 4% to 8% of the cost of your trip, include coverage for trip cancellation and delay, interruption (in case you get sick while traveling and have to return home suddenly), medical costs, and lost or delayed baggage. They also include 24-hour phone service to help you find a medical facility or rearrange travel plans.

Even if you think cancellation is unlikely, insuring yourself for medical issues is a good idea, especially if you’re traveling abroad. U.S. insurance is typically not accepted abroad (and Medicare is rarely accepted). Even if you’re planning travel within the U.S. your insurance may have large deductibles or co-payments for care outside your home area. Medical evacuation to get you to a treatment facility from a remote area or to airlift you home can cost upward of $100,000.

A package policy includes medical and medevac coverage. You can also purchase travel medical insurance separately. The cost is based on your age, preexisting conditions and the length of your trip. For example, a 50-year-old traveling for two weeks can get $50,000 of medical coverage and $300,000 of medical evacuation coverage for about $40. Look for policies that offer primary coverage; otherwise, the insurance won’t kick in until your medical plan has processed a claim.

Be wary of the offerings from airlines and cruise lines. Airline policies typically offer less coverage for the same price as a third-party package plan, and cruise insurance may offer vouchers for future travel instead of reimbursement. Also, their policies don’t cover their own financial default, so if they go under, you’re out of luck. Policies sold by travel sites are also less comprehensive.

Many companies now allow you to add riders that let you cancel for any reason. Say you’re worried about political unrest in the region you’re visiting, or you think you may have to attend a funeral during your trip. You can pay extra and cover every eventuality. The surcharge is 50% to 60% of your base premium, and about 75% of your costs will be reimbursed if you cancel (some companies offer up to 90% reimbursement). The catch? You still must cancel at least two days before your trip.