How Travel Insurance Works

By: Charles W. Bryant
Plane crash
A flight insurance policy can be had for $10. See more pictures of airplanes.
Photographer: Jenny Woodworth | Agency: Dreamstime

The question of whether or not to purchase travel insurance isn't easily answered. Some people throw caution to the winds and never get any insurance at all, much less travel insurance. Of course, these same folks may end up in debt for life if they're ever in a disabling accident. Travel insurance poses some new questions -- some vacations are low risk and cost very little money and therefore probably aren't worth insuring. A vacation that includes hang gliding on a remote island during hurricane season, on the other hand, may be worth insuring. If you're prone to injury, illness or flat-out bad luck, you might want to consider insuring your trip as well.

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Your personal insurance carrier, your credit card company, travel insurance specialists and travel agents all offer forms of travel insurance. It's important to note that many things related to your vacation may already be covered through your auto or health insurance, or your credit card. There's also a fair amount of tricky fine print and enough bad deals out there to make the casual traveler skeptical about purchasing the extra insurance. And sometimes filing a claim isn't as easy as you'd like.

A simple flight insurance policy can be had for as little as $10, covering you in the event of death by plane crash -- how's that to lift your s­pirits? Other more comprehensive policies fall in the range of 3 to 8 percent of the total cost of your trip. It all depends on what kind of coverage you want. The good thing about travel insurance is that it's so flexible. You can find out what you're already covered for and then order a la carte from the insurance menu.

So which variety of travel insurance should you choose? Or should you even bother with it at all? We aim to clear up these issues and provide you with the information you'll need to answer this question on your own. We'll walk you through the different types of insurance offered, give you some tips on how to get the best deal, explore some new options in the industry and get to the bottom of what your credit card covers.


Types of Travel Insurance

A weather report like this one begs for cancellation insurance.
© Fochesato

There are three main types of travel insurance: medical coverage, trip protection and luggage or car rental protection.

Medical Coverage

A medical/health policy covers medical and dental expenses incurred because of injury or illness. If you fall into a sewer in Paris, you'll be glad you bought medical coverage.


Then there's medical evacuation coverage, which covers you in case you need to be transported to a hospital. If you're injured in a remote area and need a helicopter, it'll be extremely expensive, and you'll really second-guess your decision not to get evacuation coverage. It's typically included under medical coverage, but can also be purchased as a stand-alone policy.

You can also purchase an accidental death and dismemberment policy. This covers you on your flight over, back and at all times on the vacation. It acts like any life insurance policy, paying your beneficiary a set amount in the event of death.

With all medical policies, it's vital to check their rules for pre-existing conditions and age limits. Some policies have substantial price hikes for seniors.

Trip Protection

This coverage is broken down into three parts, beginning with cancellation coverage. In the event that you need to cancel your trip due to illness, your prepaid expenses will be reimbursed. It also allows cancellation if a family member is sick or dies.

Delay coverage handles transportation delays. If your hometown airport is snowed in and there are no flights going out for several days, your prepaid hotel expenses are covered.

The last type of cancellation coverage is trip interruption protection. If you get sick while away, or a family member falls ill or dies, you'll want an interruption policy. It also covers your trip if it's cut short due to bad weather, travel company bankruptcy, an airline strike and even jury duty.

Most trip protection policies can be purchased for a single trip or an annual multi-trip basis. People who do a great deal of traveling or plan an "around the world" vacation might be interested in a multi-trip policy.

Luggage/Car Rental Protection

­This covers your rental car in the event of an accident and your baggage and personal items if they're lost, damaged or stolen. This kind of policy usually doesn't cover loss or damage in flight, and some of your personal items may be too expensive to cover. It's very important to read the fine print about what's covered and under what circumstances. You should also check with your personal auto insurance and credit cards -- they'll often cover your car rental.

With all of the above policies, look for ones that offer travel assistance in addition to the monetary coverage. This assistance service usually provides a 24-hour phone number that you can call to find everything from a reputable local doctor to a translator. They can also assist you with lost or stolen passports, wire transfers and even local legal representation.

In the next section, we'll give you some tips for getting good deals on travel insurance.


Travel Insurance Buying Tips

Credit cards
Your credit card may offer built-in or add-on travel insurance.
Shaun Egan/Getty Images

The first thing to do when determining your insurance needs is to check all your current insurance policies and credit cards. Your health, life, auto and even homeowners insurance often cover a great deal of what you'd pay for with travel insurance. You should also check your existing policies closely if you're traveling abroad to ensure coverage in foreign countries. The best thing to do is to call your agent, tell him your plans and see what he recommends.

Your credit cards may also cover a portion of your vacation. Visa provides a good emergency assistance network at no additional charge, but you'll be responsible for any expenses. Mastercard's gold and platinum editions offer travel coverage for loss or damage of luggage, hotel burglary and roadside auto assistance. Their World Elite card provides the most comprehensive benefits, including trip cancellation, emergency accident and car rental coverage. It also offers a personal travel consultant, concierge service and airport lounge access, but you'll need a good credit rating and income to be eligible. American Express also provides comprehensive travel coverage. The company offers automatic car rental insurance with certain cards as well as accident coverage en route if the fare was purchased with the card. Their platinum card even covers medical evacuation. American Express also has stand-alone travel insurance that covers everything a standard insurer might offer.


Here are some more purchasing tips and things to look for:

  • Check to see if your expenses are covered up front, or if you pay and get reimbursed later.
  • Make sure you understand the deductible and any coverage limits.
  • If you're on medications, be sure your policy covers replacement costs.
  • Beware of policies bundled with your trip by your travel agent. They're often substantially more expensive.
  • As with any insurance, shop around. Check prices and compare coverage.
  • Check your destination's national medical plan. Some are less expensive than travel insurance and tourists can even be covered under the country's health care system.
  • Check with your insurance carrier about adding a rider to your existing policy to cover expensive items like laptops and jewelry.
  • Check to see if a cancellation due to terrorist acts is covered.
  • Ask if the coverage is primary or secondary. Secondary policies require that you go through your standard insurance first. Primary covers you outright.
  • Make sure there are no destination restrictions.
  • Find out what hazardous activities are covered and weigh that against your recreation plans.
  • Maximize your coverage by buying at least two weeks before your trip.

In the next section, we'll wrap up our travel insurance assessment with a look at some new options being offered by carriers.


Travel Insurance Options

David Hasselholf
If your trip to Berlin to see David Hasselhoff perform has been cut short, a travel insurance policy can reimburse you the ticket price.
Gaye Gerard/Getty Images

With loads of competition in the travel insurance market in recent years, companies are becoming more creative with the policy options they offer. An overall rise in travel and the increasing popularity of adventure tourism has led to more circumstances being covered. Your average Joe and Jane are branching out from the weekend in Florida and going to remote destinations to participate in exciting and sometimes hazardous activities.

Cancelling a trip at the last minute for no good reason hasn't typically been covered by travel insurance. In June 2007, AIG Travel Guard, one of the leading travel insurance providers, began offering such coverage. You're able to cancel at the last minute due to work obligations or even if you just don't feel like going. Their "no questions asked" policy will pay you 75 percent of your trip cost up to two days before departure. These policies may cost a bit more, but provide a great deal of flexibility. AIG also increased their cancellation coverage from a $30,000 maximum to $100,000 [source: New York Times].


Travelex, another leading company, now offers reimbursement for event tickets purchased with a credit card if you're unable to attend the event due to delay or cancellation. So if you bought $200 seats for that Yanni show at the Acropolis and bad weather kept your catamaran land bound, fear not. You'll get your money back and rock softly another day.

Several companies, including American Express, offer golf coverage. This pays for loss or damage to clubs as well as reimbursement for prepaid greens fees lost due to poor weather. Workaholics can purchase cheap insurance policies that will pay you back if you have to cancel a trip because of a business obligation. Access America's BizPack policy can be had for a mere $19 per person [source: New York Times].

Many policies now allow you to cancel your trip and get your money back if a terrorist activity takes place within 30 days of your arrival. Natural disaster coverage has become more comprehensive as well. Previously, you would only be covered if carriers stopped going to a region ravaged by hurricane, fire or tsunami. Now, many companies allow reimbursement if the destination has become uninhabitable as a result of a natural disaster. Some companies will also cover you in case of a hurricane warning -- even up to 24 hours before your departure.


For more information about traveling and insurance, please mosey on over to the following page.


Lots More Information

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More Great Links

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  • "Mastercard Guide to Benefits.", 2008.
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  • "Understanding Travel Insurance.", 2008.