Travel Insurance: What You Need to Know Before You Buy

Here's the good news: travel insurance covers more than it used to. The bad news is, travel insurance is more complicated than ever. Here are the ins and outs of insurance.

By Sascha Segan

Here's the good news: travel insurance covers more than it used to. Since I first wrote about trip insurance in Frommer's Fly Safe, Fly Smart in 2001, travel insurers have come up with policies that protect you if you lose your job, if you're ordered to work instead of taking a vacation, and even policies that let you "cancel for any reason." (Those last ones are pretty popular.) Waivers of pre-existing conditions can let smart shoppers prevent their claims from being denied.

The bad news is, travel insurance is more complicated than ever. With so many options, and with policies written in a language that only sometimes resembles English, it can be nightmare figuring out what you actually need.

"I don't know how people without insurance backgrounds figure out insurance," said Steve Dasseos, president of TripInsuranceStore.com (www.tripinsurancestore.com ).

Here's our stab at explaining the ins and outs of insurance.

Do You Need Travel Insurance?

The first thing to ask is whether you actually need travel insurance.

"Every person has their own level of risk tolerance," said John Cook, president of QuoteWright.com (www.quotewright.com ).

Travel insurance comes in two major flavors: medical and "trip cancellation" (which includes baggage and car insurance.) Travel medical insurance is potentially the most critical (in fact, some countries won't let you in without it), but you may already be covered. It's time to have a heart-to-heart with your own health insurance company about what happens if you're injured overseas. Will they pay your medical expenses? If you're heading somewhere without a decent health-care system -- will they pay for a medical evacuation? If something goes wrong, how can you reach them from abroad? What's the amount you're covered up to? Medical evacuations can cost $50,000 or more, so it's important to make sure you don't max out your own medical plan.

You probably already have car insurance, but supplemental car insurance can prevent accidents from raising your home car insurance premium, insurance brokers said. Yes, this sounds like a far-fetched way for them to sell more insurance, but as Dasseos says, it all comes down to your risk tolerance.

Trip cancellation insurance is the thorniest to deal with because it has so many ins and outs. You can get coverage for trip cancellation, which means not going on your trip at all. Trip delay or interruption coverage covers being stuck in the airport or missing a connection to a cruise. Baggage coverage gives you money if a travel supplier loses your luggage.

Even there, you should check around for existing coverage. Some credit cards, such as the American Express Platinum Card, come with baggage coverage; you may also have some travel baggage coverage as part of your homeowner's policy.

Depending on the coverage you're looking for, insurance should cost between 3-8% of your trip price, according to travel insurance comparison websites. For a $4000 trip booked through TripInsuranceStore.com, that means prices ranging from $130-282, depending on the amount of coverage you're looking for.

You can learn a lot more by checking out our companion article, "10 Questions to Ask Your Travel Insurer."

Who To Buy Travel Insurance From

You can buy travel insurance from an insurance company, a broker, a travel agent or a tour operator.

Third-party brokers who deal with many companies can give you a good independent perspective. Dasseos' TripInsuranceStore.com, for instance, compares plans from six different insurers. Other top brokers include QuoteWright.com, InsureMyTrip.com (www.insuremytrip.com ), and Squaremouth.com (www.squaremouth.com ). Just like with a mortgage broker and unlike with a travel agent, the insurers pay the broker's commission, so you don't pay more than by booking direct.

Insurance companies themselves can present a variety of plans, but of course you've got to compare the companies' plans against each other on your own. Try our list of top insurance companies and our questions to ask your insurance company to start. There are some bad insurance companies and even fake insurance companies out there, and we'd like to make sure you go with someone reliable.

We're a bit uneasy about trip insurance sold by online travel agents, tour operators, and especially cruise lines. These policies can be incomplete and poorly explained. A "buy travel insurance now" check-box on a website doesn't give you the proper warning about things the insurance doesn't cover, and insurance sold with cruises may not cover the planes, trains and automobiles you take to get to and from your ship.

When to Buy Travel Insurance

You should buy travel insurance right after you book your trip -- preferably on the same day. As soon as you pay for your trip, the clock starts ticking on the pre-existing condition waiver. You want a pre-existing condition waiver, as it cancels out an administrative hell that results in more than 20% of claims being denied, according to QuoteWright.com's John Cook. Some travel insurers give you 14 days after you started to book your trip to get the waiver, but some only give you 24 hours. To get the most options, think of booking travel insurance as something you do at the same time as booking your trip.

If you're a frequent traveler, travel insurance companies also offer multi-trip and annual policies that may be cheaper than buying a policy for each trip.

Travel Medical Insurance

If you need travel medical insurance, you need to choose between "primary" and "secondary" coverage. Primary coverage effectively replaces your existing medical insurance, with your existing insurance picking up the slack after the travel insurance runs out. Secondary coverage lets your existing insurance take the lead, with the travel insurance plan covering deductibles, co-pays, and anything your primary insurance company won't handle.

Primary plans have a lot less paperwork involved, Dasseos said; secondary plans can take up to eight months to pay out.

Policies vary in terms of the amount they cover, whether they include dental work, and whether they can advance payment to hospitals that require proof of payment before they treat you. In Western Europe, you'll probably want a lot of coverage -- hospitals can be expensive -- but "emergency medical transportation" isn't as much of a concern. In the jungles of Honduras, though, a $100,000 helicopter ride to the nearest quality hospital might just save your life. (You'll rarely need more than $100,000 of evacuation coverage, Jim Grace, president of InsureMyTrip said.)

Also, beware the dreaded "pre-existing condition." Pre-existing conditions are any medical condition you (or sometimes other people) have been treated for within a set time period, generally anywhere between 3 and 6 months. If you can't get a waiver of pre-existing conditions, you need to think hard about every doctor's visit you've had, every prescription you've filled, and every family member who's already sick, because events resulting from those things may not be covered on your policy. And if you think you might cancel because Grandma is looking frail, her pre-existing conditions may come into play, too. It's really best to get a waiver.

Trip Cancellation Insurance

The biggest news in the travel insurance industry in the past few years is the "cancel for any reason" policy, which lets you get at least some of your money back -- usually 75-80% -- without jumping through the usual hoops of "named perils." Such policies are expensive, but they're now up to a quarter of the policies Dasseos sells because they're so easy to use, he said.

If you don't feel like a platinum-plated policy, you can assemble your own deal from parts -- but you need to look very closely at those parts. Cancellation policies can cover cancellation, lost luggage, baggage delay, travel delay (being stuck at the airport and needing a hotel), or missed connections (being stuck at the airport and missing your cruise).

But most of these policies are "named peril" policies, which means they cover the reasons they cover -- and no other reasons. Some of the reasons can be surprising: Access America's BizPack, for instance, lets you cancel if your boss demands that you work instead of going on vacation. But you have to look at trip cancellation policies with an eagle eye to see what they don't cover. For instance, policies may not cover cancellations if you're sick with H1N1 flu, because it's been declared a pandemic by the WHO and some policies exclude pandemic illnesses.

The perils also vary from insurer to insurer. Access America lets you cancel your trip if you get laid off, provided you've been working in the same place for three years. But over at Travel Guard, you only need to have held your job for a year before being laid off to get your money back. That could make the difference between an accepted claim and a denied one.