What Is Travel Insurance?

Trip Insurance Explained

Woman looking out the window of an airport
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Travel insurance guards against certain travel-related financial losses resulting from circumstances such as trip cancellations or delays, lost luggage, and even medical expenses while traveling. It’s a popular type of insurance, with Americans having spent almost four billion dollars on it in 2018.

But are people buying travel insurance out of unwarranted fears, or is it a worthwhile purchase? Let’s take a closer look at what circumstances travel insurance may cover and whether you already have this protection when you travel.

Definition and Examples of Travel Insurance

Travel insurance is a popular type of policy that reimburses you for travel-associated expenses due to unforeseen events such as canceled flights, tours, cruises, and theme-park bookings. It can also cover medical emergencies and delayed suitcases.

Travel insurance policies typically have named-perils coverage, meaning they cover only specific instances and losses under certain conditions named in the policy.

  • Alternate name: Trip insurance

How Travel Insurance Works

Typically, your plan provider reimburses you for a covered financial loss after a claim approval. That means you usually pay for expenses out of pocket first, then receive your money back later.

Say you purchase travel insurance for your family vacation to the Bahamas in August. Three days after you arrive, a hurricane hits the island. Everyone is okay, but everything shuts down on the island while you’re there because of widespread flooding and power outages. Travel insurance covering trip interruption can reimburse you for nonrefundable prepaid expenses you weren’t able to use, and change fees to move up your flight.

You can purchase a plan through insurers, travel agents, travel insurance providers, travel suppliers, and internet aggregators.

In prior years, there weren’t industry standards for travel insurance policies. But in 2016, concerns were raised about the lack of regulation. As a result, a travel insurance working group was appointed to address this. Two years later, the National Association of Insurance Commissioners (NAIC) adopted a model law, which covers market regulation, rate regulation, and enforcement.

What Does Travel Insurance Cover?

Travel insurance typically bundles three types of coverage: trip cancellation, interruption, and delays; medical insurance and evacuation coverage; and 24-hour assistance in case of emergency.

Trip Cancellation, Interruptions, and Delays

  • Illness, injury, or death
  • Uninhabitability of your destination from flooding, fire, and other natural disasters
  • Work-related reasons, such as involuntary job loss
  • Acts of terrorism
  • Other reasons like jury duty, extended school year due to weather, and more

Baggage Loss, Delays, and Personal Effects

  • Lost, stolen, or damaged bags up to your plan limits, such as 75% of actual cash value
  • Cost of personal items due to delayed baggage

Travel Medical Insurance

  • Injury and illness medical expenses while traveling
  • May act as primary or secondary insurance, depending on the policy

Primary insurance means that you don’t need to use your own medical insurance for covered losses. Secondary means it will only cover medical expenses that your health insurance plan doesn’t cover.

Medical Evacuation Insurance

  • Medical evacuation to the nearest hospital

Cancel For Any Reason (CFAR)

  • Coverage for trip cancellations for any reason, up to a specified time frame
  • May give partial refund of 50% to 75% of total price

Assistance Services

  • Help arranging medical treatment in an emergency
  • Monitoring your care
  • Help replacing lost passports
  • Interpretation services
  • Help arranging accommodations in an emergency

Travel insurance may not offer coverage for:

  • Pandemics
  • Preexisting health conditions
  • Civil and political unrest at the destination
  • Extreme sports such as snowboarding and bungee jumping
  • Pregnancy and childbirth
  • Fear of traveling to countries
  • Medical travel

Each type of travel protection provided under a travel insurance policy has its coverage limitations and exclusions. Read your policy’s terms carefully to ensure you have the kind of coverage and amounts you think you do. Also, search for any conditions of coverage, such as needing to obtain approval before receiving medical care. 

When Is the Best Time To Buy Travel Insurance?

Many plans allow you to purchase coverage up until the day before you leave. But like other insurance, travel insurance is designed to protect against unforeseeable circumstances. So the best time to buy it is before you need it.

You don’t have to purchase travel insurance as soon as you book your cruise, but if you wait to buy it until a named hurricane starts heading toward your destination, any related losses wouldn’t be covered.

Some travel insurance providers may also provide bonus coverage if you buy within a certain window, such as within 15 days of making your first trip deposit.

How Much Does Travel Insurance Cost?

Travel insurance may cost between 4% and 10% of your total trip cost. Factors influencing your price include:

  • Your age
  • Total trip spending
  • Coverage amounts
  • Coverage add-ons
  • Number of people covered
  • Your destination location
  • Number of days traveling

Discounts aren’t allowed with travel insurance. Providers must file rates with each state, and they cannot offer discounts off the filed pricing.

Alternatives to Travel Insurance

Before purchasing travel insurance, check to see if you already have it through other means. Some credit cards include a travel protection benefit when you make travel purchases on the card. Your card may cover trip cancellation, medical coverage, and baggage and personal-effects loss. It can also offer things like rental car damage coverage and death benefits.

Another place to look is your home or renters insurance, which can provide coverage if your personal belongings are lost or stolen while traveling. Depending on your policy, you may receive the item’s actual cash value or replacement cost value, up to your policy’s limits. Some common items, such as sunglasses, may be excluded.

Even if you have coverage for your personal effects under your home or renters insurance, it’s not always worth filing a claim because your deductible may be close to or above the value of what was lost. Your home insurance could even be canceled if you make more than two claims within five years.

Do I Need Travel Insurance?

Trip insurance can be a good investment if you can’t afford the costs of:

  • Losing your prepaid vacation expenses due to unforeseen events
  • A return flight home if you need to shorten your trip because of an emergency
  • Medical expenses while away from home if your health insurance plan doesn’t cover foreign emergency care
  • Lost or delayed baggage and canceled or delayed flights, such as an extra night at a hotel or replacing clothes and personal-hygiene items

Consider that you may already have many of the major protections offered by travel insurance through a credit card. Decide whether that’s enough coverage for you or whether supplementing with travel insurance gives you greater peace of mind.

The U.S. Department of State urges consumers to consider their medical insurance options before traveling abroad, such as travel health insurance and medical evacuation insurance. U.S. citizens overseas aren’t provided medical insurance by the U.S. government. Your current health insurance provider may not extend coverage overseas either.

Key Takeaways

  • Travel insurance is usually a comprehensive policy that bundles three types of coverage: trip cancellation, interruption, and delays; medical insurance and evacuation coverage; and 24-hour assistance in case of emergency.
  • You may already have a credit card providing many of the same protections covered by travel insurance. Your homeowners or renters insurance may also protect your personal belongings.
  • Travel insurance is best for people who don’t already have travel protections through other means. It’s also a good option for those who can’t afford the travel-related financial losses arising from unforeseen events.