By Gregory Karp
Chicago Tribune (MCT)
A close relative dies just before you leave for a Caribbean vacation, and you have to cancel your nonrefundable trip to attend the funeral. Or, you're hiking in the Alps, have an accident and need to be airlifted off a mountain.
These are the types of nightmare scenarios that make even confident travelers nervous. And they're why travel insurance can be an attractive idea.
But whether travel insurance, also called trip insurance, is a good buy for consumers isn't clear cut.
Buying the insurance isn't cheap, maybe $200 to $400 to insure a $5,000 trip. And it may duplicate coverages you already have, such as health insurance, home insurance, auto insurance and benefits from the credit card you used to purchase the trip.
But it's a type of insurance that has been growing. The U.S. Travel Insurance Association, which says it represents 90 percent of the trip-insurance market, reports that Americans spent $1.9 billion on insuring their travel in 2012. That's up nearly 50 percent from five years ago.
One of the main questions with any insurance is: Why am I buying this? In general, the answer should be to protect yourself or people you care about from financial disaster, not financial annoyance.
So, insuring your trip against unexpected cancellation, one of its primary purposes, probably fails that test. Not going on a trip doesn't cause additional financial distress. It's just disappointing that you didn't get the experience of the trip, and some expenses won't be refunded.
Similarly, having to pay an airline $200 to change your plane ticket is annoying, for sure, but not a money disaster.
By contrast, having to pay $45,000 after being airlifted off a mountain in a foreign country reaches the "financial disaster" threshold for many people, and therefore could be worthy of insuring against.
As a rule of thumb, consider travel insurance if you're traveling abroad or if a big chunk of an expensive domestic trip is nonrefundable, experts say.
But the better answer lies in the details. To help you decide whether to buy trip insurance for your next vacation, here are common questions and straight answers, with help from Linda Kundell, spokeswoman for the U.S. Travel Insurance Association and Jim Grace, CEO of insuremytrip.com, a travel insurance broker.
What does travel insurance cover? Travel insurance is usually sold as a package of coverages that can be broken into three basic components, according to the Insurance Information Institute.
The coverage many people think about is trip cancellation, interruption or delay. For example, it would pay you for the nonrefundable parts of a vacation if you have to cancel a trip because of illness, a death in the family or other mishap listed in your policy.
Pricier policies, often costing 50 percent more, offer a "cancel for any reason" provision, which means your reason doesn't have to be listed in the policy. It will reimburse you for a large portion of your trip, 75 percent to 90 percent.
The second type of coverage, arguably the most important because it protects against additional expenses that could be catastrophic, applies if you become sick or injured during travel — maybe you have to be flown home from a foreign country.
Indeed, medical expenses and medical evacuation — different things — are especially important if you're traveling abroad and your regular health insurance doesn't cover you. Only about half of health policies provide medical coverage abroad, Grace said.
Notably, Medicare without supplemental coverage does not cover you outside the United States.
"When I travel, I always get medical, and then I look at my trip costs and see what's at risk," Grace said.
The third type of coverage is travel assistance, which is a concierge service.
It can help you find doctors or contact family members in case of an emergency, for example. It's a throw-in benefit with most package policies and doesn't boost the cost much, Grace said.
Typically, travel insurance is bought per trip, but some frequent travelers buy an annual policy.
How much does it cost? Trip insurance costs, on average, 4 to 8 percent of the cost of the trip. The price is based on coverages chosen, the age of the traveler and cost of the trip.
What's the biggest warning about trip insurance? Know what a policy covers before you buy it. Only scenarios specifically listed in the policy are covered. And there are exclusions. For example, if your problem arose because you were reckless or drunk, your claim is likely to be denied. Call an insurer or broker to talk out your concerns to make sure you get the proper policy, Grace said.
What's the main argument for buying trip insurance? If you're traveling outside the country, emergency medical and evacuation coverage is probably a good idea, assuming you're not otherwise covered. "It could be a $2,000 ambulance trip or it could be a $150,000 (medical) flight from China to the U.S.," Grace said.
What's the main argument against buying trip insurance? Duplicate coverage. You might already have coverage for some of the travel risks you face. Consumer Reports and the Consumer Federation of America have been lukewarm on travel insurance for just this reason. For example, if you have adequate life insurance, you don't need accidental death insurance.
Check first and foremost with your health insurer. Then check your homeowners, life and auto policies to determine what they cover when traveling. Also check with your credit card company to determine what travel insurance it offers when the card is used for travel charges. And being a member of AAA gets you some benefits similar to those offered in a travel insurance policy.
How does my homeowners policy help? Your homeowners or renters policy will usually provide coverage for off-premises theft — if your luggage is stolen, for example. However, filing a claim on your homeowners policy for a few hundred dollars might be a bad idea. First, you have to pay your deductible, which might exceed the value of your claim. Travel insurance has no deductible. Second, filing a claim might cause your insurer to raise your rates or drop your coverage, Grace said.
Where can I purchase travel insurance? Travel suppliers, such as airlines, hotels, cruise lines and tour operators sell it, as do travel agents, private insurance firms and insurance brokers, including those online. Buy your trip and your insurance from separate companies. If you buy from a tour operator that goes out of business, you lose your vacation and your insurance.
How do I get a good deal? The industry has become more competitive in recent years as more companies join and create an "arms race" to add more benefits to policies, Grace said. "In the end, it's better for consumers," he said. "The stuff that's out there today is really advanced, really tuned to the travel risk that people have today."
Look for online reviews of travel insurers. One can be found at the review section of insuremytrip.com