I recently booked two trips and during the checkout process I was presented with the option to buy travel insurance. Is travel insurance a good deal or is it just a rip off? How much should you pay for it? What does it cover? And that is what this article will go over. We’ll go over what travel insurance does for you, when you may want it and when you may want to take a pass, and what it will protect you against.
What Is Travel Insurance
Travel insurance is, simply put, insurance that will reimburse you should you not be able to make your trip or need to change your schedule. Additionally, some travel insurance will cover you for “lost” vacation time should you be on your trip and fall ill. However, you need to read all the fine print on what your trip protection offers. Some plans are quite comprehensive and others may only cover one aspect of your trip like the flight, the hotel, or the car booking.
It is also important to distinguish travel insurance from travel health insurance. Whereas travel insurance covers your trip, travel health insurance covers any healthcare you might need while on the trip. To determine if you need this you should ask your healthcare provider if they cover expenses incurred abroad. Some do not, and in this case you should strongly consider a policy to cover you while out of country. For visitors coming to the USA this is quite important as healthcare costs can be extremely expensive. In a lot of developing countries if you can’t pay you don’t get treated.
How Much Does It Cost
All insurance is a calculation by the company – what are the odds of you cancelling and what will the payout be. They then work out their expected payout over thousands of customers, add their mark-ups for company overhead and profit, and that is how they price you. In general, this will work out to 4-8% of your total trip cost or about 10-20% of the re-booking cost. However, this can vary wildly. Airlines can often offer flight protection for quite cheap since they operate the flights and can change you to another available flight for low costs to them. Companies like Travelocity and Expedia can also sometimes offer quite cheap insurance on things like package holidays because they know they will be able to find a replacement for you should you need to cancel.
However, here at Caveman Cash we like getting things for free – so we’re going to look at our credit cards. One thing you’ll notice on a lot of rewards cards is that they offer travel insurance that covers items that you book with the card. For example, you often get free coverage through your credit card for travel accident insurance, trip cancellation insurance, trip delay insurance, lost luggage insurance, and more. Definitely give your card provider a call to see what they offer and what the stipulations are.
What It Protects Against
Most travel insurance packages, especially those sold by third-party providers, offer comprehensive travel protection. These plans will cover things like trip cancellation, trip interruption, trip delay, lost or delayed baggage, medical coverage, medical evaluation and more. However, there are restrictions and caveats, and you may have to provide lots of documentation.
Plans will often cover you for a number of reasons. These often include:
- Death of an immediate family member
- Sickness or injury
- Other personal reasons (if it includes trip cancellation), but this varies
- Weather-related cancellations
- Terrorism at your destination
In terms of what you may need to provide to document your claim:
- Medical records or death certificates
- Receipts for flights, hotels, rental cars, and other bookings
- Proof that you can’t get the money refunded from the airline, hotels, etc.
- Documentation that it wasn’t a pre-existing condition when you paid for the insurance
- An affidavit that you are filing an honest claim
In terms of what you aren’t covered for, this varies a lot by plan, but here are some common ones:
- Travel partner cancellation. If you and a friend are planning a trip (i.e., not a family member) and they need to cancel, then you can still go on the trip according to most insurers. So that doesn’t qualify. Your boyfriend’s mother dies? Tough luck. Not covered by standard trip insurance.
- War. If a civil war breaks out in your destination of choice, then that isn’t covered either. They get bombed by a neighboring country? Tough luck. Not covered. This can create a thin line between what is called terrorism and what is called war for some destinations.
- Military duty. If you get called up for military duty because you are in the reserves or active duty? Not usually covered.
- Similarly, your boss cancels your leave? Usually not covered under basic policies. However, in this case you should try and negotiate with your company.
When You Should Buy It
A lot of the decision on buying travel insurance is personal – how often in the past have you been forced to miss trips due to schedule changes or other reasons? Part of it is also financial – how much will it cost you to change your flights, hotels, rental car, and other bookings.
If you think there is a 50% chance of you needing to reschedule and travel insurance costs $25 and your re-booking fee is $50 then it is neutral value to you. 50% * $50 rebooking fee = $25 cost when risk weighted. If you can get the coverage for $10, then it is a good deal for you.
So, with this mathematics in mind, let me take a look at the two trips I just booked. One is a business trip for just myself. The other is an all-inclusive resort vacation with the wife and the two young children. For the business trip there is almost no chance that I will cancel, and if I need to rebook it will be $100. The insurance was $25 dollars. So, let’s say a 10% chance of cancelling * $100 rebooking = $10. That means I’m better off taking the risk and not getting the insurance. Now, for the trip that I booked with the wife and kids. For that trip if I need to re-book I will have to pay fees on the flights and for the resort. This will cost $100/flight * 4 people + $300 for the resort = $700. If you’ve ever tried to travel with two young kids you know that there is a high likelihood of one of them getting sick at the last minute. Let’s say that it is a 20% chance. That means we take the $700 * 20% = $140. When I look at the fact that travel insurance was offered to me for only $40 it seemed worthwhile.
So, back to when you should buy travel insurance – you should buy it when you think there is both a reasonably chance that you will need to cancel your flights AND when the insurance on offer is priced less than it would be on a risk adjusted basis. However, before you book you should still check to see if you are protected by insurance from other sources. For example, some credit cards offer purchase protection which also covers cancelled travel. Also, don’t be afraid to shop around for it – you’ll often find better deals than what you’re shown at the time of checkout.
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