Travel Is Back, But Does It Still Make Sense to Buy Insurance?

Many airlines continue to suspend change fees for flights in response to the pandemic, while some hotels are still offering flexible cancellations and/or re-booking, at least for now. But even though you may not expect to face financial consequences if you end up changing your travel plans, there are still some good reasons to consider purchasing travel insurance.

The trip of a lifetime may cost many thousands of dollars, and vacationers have recently been reminded that many circumstances that can spoil their travel plans are entirely out of their control. In mid-2022, nearly 2% of flights leaving U.S. airports were cancelled, and about 25% arrived late at their destinations.1

Cancellations and late arrivals are not only frustrating but could cause you to miss a cruise, tour, resort reservation, or other scheduled activities. And what if medical problems or other unexpected personal issues force you to postpone, cancel, or cut your trip short?

Travel insurance offers financial protection when unforeseen problems arise and well-laid plans go awry. There are several key types of coverage, and most travel insurance companies provide a 24-hour assistance line that is available to help travelers locate doctors, arrange accommodations, and contact family members in the event of an emergency.

Trip Cancellation, Interruption, or Delay

Trip cancellation coverage (also called “trip protection”) is helpful if you must cancel a trip for covered reasons spelled out in the policy. Covered events might include an illness or injury, a death in the family, severe weather, and even an involuntary job loss. Most policies also reimburse you for the unused portion of a vacation in the event that you or an immediate family member experiences a serious illness or injury during the trip. Some policies provide coverage if a tour operator goes out of business. Trip interruption coverage offers protection while you are on your trip, and travel delay coverage reimburses you for expenses incurred if your flight is delayed.

Keep in mind that some policies may exclude pre-existing medical conditions. And most policies will reimburse you only if you cancel your travel plans before you leave or cut your trip short due to an “unforeseen event,” which means most policies exclude “known events.” For example, COVID-19 was considered a known event once it was declared a pandemic.

However, you may be able to add “cancel for any reason” (CFAR) coverage that will reimburse about 75% of the trip's total cost, provided you cancel in a certain timeframe before departure (typically 48 to 72 hours). CFAR coverage can cost 30% to 40% more than a basic trip cancellation/interruption policy, may have additional eligibility requirements, and usually must be purchased within two to three weeks of purchasing your original policy.2 The cost of travel insurance is usually based on the age of the traveler, the specific types of coverage desired, and the price of the trip, but it typically runs about 5% to 6% of the total trip, on average.3

Trip cancellation coverage may be more comprehensive and reliable than a cancellation waiver purchased directly from a cruise or tour operator. Waivers typically have extensive limitations and are not subject to state insurance regulations. Before purchasing a policy, be sure you understand the specific situations that are covered.

Medical Insurance and Evacuation

This coverage provides insurance coverage and medical assistance if you become ill or injured — for example, you need to see a doctor or stay in a hospital while in a foreign country, or you need to be airlifted from a mountain due to a skiing or hiking accident. It might also provide coverage if you must be flown home (or to another country that has first-rate medical care) because of an illness or injury.

You should be aware that if you need medical care while abroad, it must be paid by cash or credit card at the point of service, even if you have health insurance at home. Some policies may provide coverage for medical emergencies incurred outside the United States, but supplemental coverage might be needed. Medicare does not provide coverage while you are abroad.

Personal Effects Coverage

This coverage reimburses you (up to policy limits) in the event that your personal belongings are lost, stolen, or damaged during the trip. Before purchasing personal effects coverage, find out how much insurance the airline or trip operator would provide for your belongings. Also check your homeowners or renters policy, which may cover off-premises theft (but consider the policy deductible). If you are traveling with expensive items such as electronics, jewelry, or sports equipment, you may be able to purchase a floater or endorsement to your homeowners or renters policy.

Accidental death and dismemberment (also called AD&D) insurance provides a benefit (up to policy limits) on covered events during your trip. If you already have life insurance or AD&D protection, this coverage may not be necessary.

There are many different providers and policies from which to choose, as well as specific exclusions to be aware of. The credit card used to book your trip may also offer some travel benefits. When planning for your next vacation, take some time to investigate your coverage options and read the travel insurance materials carefully.