Do you need travel insurance?
When a natural disaster strikes—like it just did in the Gulf Coast with Hurricane Harvey, in Florida and the Caribbean with Hurricane Irma, and with wildfires devastating portions of the west, including Glacier National Park—travel arrangements get disrupted across the country. Houston airports shut down for three days, grounding more than 10,000 flights nationwide, while some Florida highways, including Highway 101, were underwater. The storms left tens of thousands of travelers stranded and, unfortunately, many of them may have lost a lot of money. Sadly, it’s a good time to get up to speed on travel insurance.
When you’re traveling, it’s important to have the proper protection in case something goes wrong, like a flight cancellation, lost luggage, or medical emergency. Yet only 21% of Americans purchase travel insurance, according to a study from The Points Guy. Why? “When people are planning a trip, they don’t plan for the unexpected,” says John Cook, founder of QuoteWright.com, a travel insurance comparison site. “They don’t think about the risks that are associated with travel.”
Christopher Elliott, a consumer advocate and co-founder of the advocacy group Travelers United, agrees: “People don’t think twice about buying car insurance or homeowner’s insurance, but a lot of people just overlook travel insurance,” he says.
Another reason people don’t purchase travel insurance is because “it can be a complicated topic, which can make the product less accessible for a lot of people,” says Stan Sandberg, co-founder of TravelInsurance.com, a U.S. travel insurance provider
Granted, travel insurance isn’t right for everyone. Whether you should purchase it will ultimately depend on the type of trip you’re planning, what type of coverage you need, and how much you’re willing to spend.
Here’s what you need to know before you purchase travel insurance.
There are two types of travel insurance
You have “named peril” policies and “cancel for any reason” policies. A named peril policy only offers coverage for certain events, or “perils,” such as a cancelled flight, lost luggage, or death in the family prior to the trip. Each policy spells out exactly what’s covered and what’s not (these are called “exclusions”), says Cook.
The second type of travel insurance is a “cancel for any reason” policy, which is exactly like it sounds—the insurance company will pay you a percentage of any nonrefundable travel expenses regardless of why you cancel your trip. Naturally, this extra coverage costs more; Cook says it can add up to another 50% of the cost of the insurance policy. But be aware you won’t get reimbursed for the full costs of your trip. “Generally, you get $0.75 on the dollar,” Cook says, “but there’s a blackout period of two days before your departure during which you can’t cancel for any reason.” Therefore, you still need to be diligent and find out what your “cancel for any reason” insurance plan would cover.
Planning an international trip? Buy medical coverage
Most health insurance policies, including Medicare, don’t offer medical coverage when you’re traveling outside the U.S., which is why Elliott strongly recommends buying medical coverage. Typically, covered medical expenses are costs incurred for necessary services and supplies, such as a doctor’s visit, prescription drugs, or hospital stay, but coverage will depend on the type of policy you buy. One thing you want to make sure you get is coverage for an emergency medical evacuation, since it can cost you “well over $100,000 if you don’t have coverage,” Cook says. “It’s especially important if you’re going on a rock-climbing trip or something adventurous,” he adds.
You may already be covered
Some credit cards offer trip cancellation, medical, and/or baggage insurance if you pay for the trip with the card. For example, if your travel is interrupted or canceled due to injury, sickness, severe weather or other conditions, you can be reimbursed for prepaid travel expenses such as flights and hotel rooms for up to $10,000 per trip with the Chase Sapphire Preferred card. However, some credit cards only offer “very basic coverage,” says Cook, so be careful when evaluating what coverage your credit card company provides.
Typically, there’s a limit for expenses incurred from flight cancellation
If your flight gets cancelled, your travel insurance company will normally provide for lodging arrangements, meals, and transportation to and from the airport so that you're not stuck in an airport waiting for your next flight. (That’s assuming the airline doesn’t pay for these costs.) But policies have coverage limits. “With most policies, you get up to $150 a day per person,” Cook says. (Read: you better review your policy before you check into the Four Seasons!)
Keep your receipts
Let’s say your luggage gets lost or stolen. If you purchased baggage coverage, you’ll most likely have to pay for essential items (e.g., clothes, toiletries) out of pocket and then submit a claim to the insurance company when you get home. However, you’ll need to submit receipts to get reimbursed. “If it’s under $100, you [typically] just email the receipts and the company will transfer the money to your debit card or cut you a check,” Elliott says. “It’s a fast process.” If it’s a large claim though, you may have to submit the paperwork by mail and it could take several days for the insurance company to process the claim.
The moral: before you leave for your trip, make sure you have enough cash with you (or on your debit card) to pay for essential items.
Why travel insurance costs vary
Cook says travel insurance prices are based on three factors: your age, the cost of your trip (generally in $500 increments), and the length of your trip if you’re traveling for more than 30 days. Hence, the same travel insurance policy (assuming it has medical coverage) could cost a 70-year-old person more than it would a millennial, since older people have more health risks. In general, however, travel insurance costs 5% to 7% of the price of the vacation, says the Insurance Information Institute, so a $5,000 trip would cost roughly $250 to $350 to insure.
Travel a lot? Consider buying an annual policy
If you’re a frequent business traveler or take more than two vacations a year, it may be worth purchasing an annual travel insurance plan, Elliott says. Most annual plans offer a year's worth of protection for medical, property, and trip costs. You can use a website like QuoteWright.com, TravelInsurance.com, or SquareMouth.com to compare policies.
Of course, you always want to read the fine print—and don’t simply sign up for the cheapest policy. As Sandberg says, “travelers need to find the right plan, at the right price for them.”