The following article was written by Consumer Reports. The article is a little outdated but the content is still good and provides valuable questions and information every traveler should know when it comes to travel insurance. Travel insurance: Cut your risks. If illness, accident, or emergency strikes before or during a tour or cruise, you could face two major financial risks: the loss of nonrefundable prepayments and the heavy expense of emergency transportation home. Your exposure to either of those risks can total thousands of dollars. Fortunately, travel insurance can protect you against both. But keep in mind: Insurance is the most overpriced of all travel services. So unless there’s a good chance you’ll have to cancel at the last minute–and possibly forfeit your entire prepayment–it may not be the best investment. Trip-cancellation/trip interruption (TCI) policies cover the losses you incur if you have to cancel a trip before you leave home, or cut short the trip part way through. Emergency medical-evacuation (EME) policies pay the added cost of having to be rushed to a medical facility far from the site of the accident or illness. This report focuses on policies that cover both those major risks. Although some travel insurance covers other risks, as well, most travelers can do without that coverage. Typically, you pay inflated prices for some combination of coverage you already have (under your regular medical or household policies), coverage for minor risks (such as delayed baggage), and coverage you really may never need (accidental death and dismemberment). We note such other coverage’s only where they’re bundled into TCI or EME policies at no extra cost.
Why pay an extra 3%-14% of your total bill to insure a trip? We see two main reasons: cruises, package tours, and airline tickets typically require 100% payment in advance, sometimes months before departure. If you’re forced to cancel 60 days ahead, the penalty may amount to pocket change; closer to departure time, however, the suppliers of those products impose stiff penalties for cancellations. And some highly discounted airline tickets have no value at all if you don’t take the ticketed flight. When you have to shell out thousands of dollars for a cruise or tour, six months in advance, there’s no way you can be sure that nothing will happen in the period between purchase and departure that could prevent you from leaving on schedule or, in an extreme case, leaving at all. In the worst case, you could lose your entire advance payment. Even after you start your trip, you can’t be sure you won’t have to return home early. Your own illness or a problem back home could force you to break off your journey. TCI eliminates those financial risks. It repays you for whatever portion of your advance payment you can’t recover from the supplier. If you suffer a severe accident or illness in a remote area, you might have to be evacuated to a distant medical facility. Just rescheduling your ticket or buying a conventional flight could be expensive; evacuation by helicopter or private jet–unlikely as that might be–could cost a small fortune. EME insurance protects you against those unanticipated costs.
What you risk
Coverage for big financial risk falls into three broad categories: Illness/injury/death coverage reimburses you (or your heirs) for losses caused by something happening to you or a traveling companion: many TCI policies reimburse you for the extra costs you might incur should either you or a traveling companion fall sick, suffer an injury, or die, either before departure or during your trip. However, they don’t reimburse you for the companion’s expenses unless the companion is also insured. The policies also provide reimbursement should illness, injury, or death of a close family member at home force you to cancel or interrupt your trip.
Most TCI policies now waive any exemptions for pre-existing medical conditions, provided you insure the full value of your trip within seven days of making your initial deposit or prepayment. That’s a recent development in TCI, and a major improvement for consumers: As with health insurance generally, pre-existing conditions used to be the most contentious element of TCI. Some TCI policies (including the Health Care Abroad policy we show in the table) won’t cover any pre-existing condition, controlled or not, for which the insured person received medical treatment or advice within 90-180 days before buying the policy. In theory, that means the company could deny your claim if you so much as took an aspirin on a doctor’s advice within the exclusionary period. We see no reason why you’d even consider such a policy. Typically, rules on pre-existing conditions apply to any person-you (the traveler), a traveling companion (insured or not), or a family member at home-whose medical condition causes a trip to be canceled or interrupted.
EME insurance (or the EME component of a bundled policy) provides for emergency transportation in the event you fall seriously ill or suffer a major accident during your trip. TCI and EME policies exclude a long list of medical conditions-typically, those resulting from unusual risk and those that could be self-inflicted. Those policies won’t cover you if your trip is spoiled by a self-inflicted injury, an injury resulting from such hazardous activities as mountain climbing, a medical problem that results from the use of illegal drugs, or a war injury. Operator failure. All too often, a tour operator fails; leaving its customers stuck with worthless prepaid air tickets and hotel vouchers. Some failures strand travelers abroad without return transportation. TCI can cover those losses: All but one of the listed policies reimburse you if your operator or cruise line “fails,” “defaults,” or “ceases operations.” But the application can be tricky. Several policies pay off only if the operator ceases operations for 10 days or more–and a much briefer failure could seriously disrupt your trip. Even worse, we’ve seen some policies (but none of the listed ones) that pay off only in case of “bankruptcy.” That could render the coverage useless.
Tour operators that fail seldom actually file for bankruptcy; many simply close their doors and disappear. To guard against losses caused by tour-operator failure, it’s wise to buy a cruise or package tour from an operator that belongs to the US Tour Operators Assn (USTOA) or one that participates in the escrow program recommended by the American Society of Travel Agents (ASTA). TCI policies don’t pay off when the company that sells the insurance fails. If you buy TCI from a tour operator, the insurance won’t protect you if that tour operator fails. That’s why we recommend buying directly from an insurance company. If protection against supplier failure is your only concern, you don’t need to buy TCI. Instead, use a charge card to buy your tour or cruise. If the supplier fails, you can get a chargeback that removes the charge from your account. But you can’t get a chargeback for any of the other cancellation risks.
TCI covers you against a wide range of accidents and surprises that might force you to cancel or interrupt a trip: a fire or flood at your house, a call to jury duty, an accident that makes you miss a flight or a sailing, an airplane hijacking, a natural disaster (fire, flood, earthquake, or epidemic), terrorism, or a strike. Since our last report, TCI policies have become generally more liberal in covered risks. In fact, many now include the catchall term “unforeseen emergencies” rather than provide a long list of specifics. Still, TCI doesn’t give you a blank check to cancel a trip for any reason. Even the liberal Travel Guard policy excludes personal financial circumstances, business or contractual obligations, or “change of plans.”
And what you get, should you be hit with a problem?
TCI or EME bails you out financially: Cancellation fees/penalties. In the event of a pre-departure cancellation or postponement, TCI reimburses you for whatever fraction of your prepayments or deposits you can’t recover from the supplier. You must first apply for any refund that may be available from your tour operator, cruise line, or airline, under the terms of the ticket. TCI pays the difference between what you paid and what you can recover. Double/single adjustments. Typically, you buy a tour or cruise at a per-person, double-occupancy rate. Should your traveling companion suddenly be unable to leave on a trip, for a covered reason, TCI pays the single supplement so that you can complete the trip alone. Similarly, TCI covers adjustments that might be required if your companion has to return home early. Transportation adjustments. If a covered reason forces you to postpone your trip, TCI pays the cost of switching your air ticket to a later flight, or the extra costs of alternative transportation to join a trip in progress-for example, airfare to your cruise’s first port of call. If a problem that arises during your trip forces you to return home early, TCI covers the extra costs.
You must first find the best deal your airline will give you, and then apply for TCI to pay for any additional fare or reissuing fee. Similarly, if you have to leave a tour or cruise in mid-trip and buy a replacement ticket home, TCI reimburses you for the “unscheduled return.? If you suffer sickness or accident during a trip and need onsite help, most TCI policies will pay for a family member to travel from home to the site of your accident or hospital confinement. Should your sickness or accident be severe enough, EME insurance (or the EME component of a bundled policy) will cover the cost of special evacuation, even by helicopter or private medical jet. Coverage typically includes getting you from the accident or sickness site to the nearest adequate medical facility, as well as your eventual transportation home. Generally, EME services are provided at the discretion of the insurance company’s medical advisor.
TCI/EME insurance comes in several versions: Most major travel-insurance companies now feature their bundled (or cruise/tour) policy options as their primary product. The better examples include as much TCI as you want to buy (typically subject to a $10,000 maximum), a moderate amount of EME, plus a handful of other coverage’s. The price is based on the amount of TCI you buy. But travel insurance is grossly overpriced. The wholesale price of flight insurance is approximately 17 cents per $100 of coverage. Insurance companies, however, take a huge markup; they charge an average $6 per $100 of coverage. You can buy bundled or custom insurance from a travel agency, through a cruise line or tour operator, directly from the insurance issuer, or from any of several Internet sites. Before you buy, compare coverage and prices. Several major insurance carriers also sell custom policies that let you assemble your own travel-insurance package from a selection of options, each priced separately. Once popular, custom policies are losing ground to bundled options that often provide as much or more coverage at a lower price.
A custom TCI option typically sells for about $6 per $100 of coverage. The EME components and other options are usually priced according to the duration of your trip. Many big cruise lines and tour operators sell wholesale policies under their own names (although the insurance is actually issued by an insurance company noted in the brochure’s fine print). Wholesale policies are typically a bit cheaper than retail bundled policies, but not always-the cruise line or tour operator, not the insurance company, sets the selling price. Unfortunately, wholesale policies don’t cover some important risks-notably operator or cruise-line failure. The risk of tour-operator failure has been a longstanding problem, and these days some cruise lines are wobbly as well. Still, some wholesale policies have an offsetting advantage:
If the insurance company that underwrites the policy rejects a claim for an aborted trip, the line usually offers partial compensation in the form of a substantial discount on a future cruise. A cancellation waiver, usually the cheapest form of trip-cancellation coverage, is also the weakest. It really isn’t insurance at all. Instead, for a price, the issuing cruise line or tour operator agrees to waive its own cancellation penalties if you have to cancel your trip for a covered reason. Those waivers typically cover only limited pre-departure contingencies, they may not cover cancellations within 24 hours of departure, and they don’t cover mid-Trip interruption at all. Furthermore, you won’t recover anything if the tour operator or cruise line fails.