Travel Insurance Explained: Why You Need It

Top travel companies are quick to offer optional travel insurance as you purchase. This insurance protects against losses you may experience while traveling or due to trip cancellation or interruption. However, you should not buy travel insurance without evaluating how its coverages affect your travel situation. To do this, you must understand some travel insurance basics and verify what types of coverage you actually need.

Travel Insurance Explained

What Does Travel Insurance Cover?

When you get travel insurance, you can get different levels of coverage in one package. The most popular choices include:

Trip Cancellation, Interruption, Delay

  • Trip Cancellation Insurance coverage pays you for the loss of prepaid, non-refundable expenses if your travel operator shuts down. It is also applicable if you must cancel your trip for a covered reason, as the policy defines. This can include illness or death of you or a family member. It also covers reasons due to weather or natural disasters.
  • Insurance for Trip Interruption compensates for non-refundable expenses related to the unused segment of a disrupted holiday. It solely covers the causes specified in the insurance agreement.
  • Trip Delay Insurance covers costs for lodging and meals if your journey is postponed. If your flight is delayed or canceled because of bad weather, for example, you can get money back for food and hotel costs.

Many travel insurance policies have cancellation, interruption, and delay coverage.

Be aware of:

  • Exclusions

Carefully read the policy to understand when it covers cancellations, delays, and interruptions. These conditions may vary between carriers and policies. Possible exclusions include terrorist attacks, pre-existing medical conditions, and changing your mind.

  • “Cancel for any reason” protection

Some insurance providers propose additional features that might enable a complete refund if you cancel your journey. The reason for cancellation is irrelevant. If you cancel due to health issues, you might be able to buy a policy that covers existing medical conditions.

  • Limits

Examine the maximum permitted daily, per-journey, and per-policy reimbursement limits in case of cancellation. You should also check these for your delay and trip interruption insurance.

Baggage and Personal Belongings

This protects against damage, loss, or theft of your luggage and personal items during travel. Some trip plans may reimburse additional expenses if your delay extends beyond a certain time frame (usually 12 hours).

Be aware of:

  • Limits

The policy may place limits (usually $1,000) on reimbursement maximums for each traveler, specific items, or types of items.

  • Your current policies

Your home or renter’s insurance might already cover the property, even if it’s in your home. You’ll have to pay your deductible before the insurance starts covering the claim.

Emergency Medical Assistance, Evacuation, Repatriation

This coverage will cover your medical expenses if you fall ill or are injured while on vacation. The cost of transporting you to the nearest hospital is covered by medical evacuation. Medical repatriation may be used to cover the costs of flying you home.

Be aware of:

  • Exclusions

Pre-existing conditions may not be covered. Some recreational activities, including certain sports (skiing or horseback riding), may be covered. Protection for high-risk activities like skydiving, parasailing, and organized sports competitions may not be granted. You may consider buying an additional policy for high-risk activities or competitive sports.

  • Limits

The policy will cover all covered expenses up to a pre-specified limit.

  • Deductible

The deductible may be expensive and must be paid before the insurance applies.

  • Check other coverage

It may be wise to review your health insurance plan for what is covered when traveling domestically and internationally. For example, Medicare does not provide coverage outside of the United States. If you have questions, ask your insurer’s customer service department.

Major Medical Insurance

These plans are designed for people traveling internationally long-term and needing comprehensive health insurance. They work like a traditional care plan, except that they are not governed by the Affordable Care Act. As a result, coverage may be limited, and there may be exclusions if you have a pre-existing condition.

Be aware of:

  • Check other coverage

Look at your current health insurance and see if there is already coverage for long-term travel abroad. Review the coverages, limits, exclusions, and other terms. Additional conditions for using and maintaining your health insurance while out of the country may exist.

  • Provider network

Finding healthcare providers based abroad in the plan’s network may be impossible.

  • Out-of-pocket expenses

Review deductibles, copayments, and coinsurance expenses for medical care abroad. You will be responsible for these.

  • Limits

The limits may differ for coverage and other benefits (like prescription drugs) as they are at home. You will want to ensure they are sufficient to cover your needs if they are lower.

24-Hour Assistance

This is a 24-hour hotline that you can call for assistance with several emergencies. Most insurance packages usually include it. You may reach out if you need help:

  • rebooking a missed flight,
  • locating or replacing lost luggage,
  • finding a doctor or lawyer, or
  • understanding the required vaccinations and travel documents.

Be aware of the services covered! Your policy ought to define the included services. For example, some plans may provide concierge services for planning activities and securing reservations and tickets, while others do not.

Rental Car Coverage

If renting a car, this will cover damages due to an accident, vandalism, or natural disasters.

Be aware of:

  • Limits

The policy may only cover vehicle damage up to a specified amount.

  • What is not included

Insurance for liability, which compensates for the harm you inflict on other individuals’ cars, property, and healthcare, is not included.

  • Check other coverage

Your car insurance policy might already cover you in Canada. However, other countries have different car insurance requirements that can be confusing. Contact your car insurance provider to determine if your policy protects you when renting cars abroad.

You can also buy insurance directly from the car rental company. For more information on car insurance requirements in different countries, you can visit the U.S. Embassy website.

Accidental Death and Dismemberment Insurance

This coverage provides a lump-sum payment to a beneficiary should you die on the trip due to an accident. The policy also provides coverage in case of loss of limb, hand, foot, eyesight, hearing or speech. Some plans specifically limit your death or dismemberment to occurrences on a plane.

Be aware of:

  • Checking other coverage

This may be unnecessary if you have enough life insurance. Most employers offer a life insurance policy to their employees.

  • Exclusions

Accidental death and dismemberment insurance doesn’t pay for death or accidents caused by certain medical issues. Excluded conditions include a stroke, aneurysm, or heart attack. There is a time limit for accidents causing death or loss of body parts (usually one year). Activities with high risk might not be included in the coverage.

Choose the right travel insurance coverage based on how often you travel. Single-trip coverage is good for occasional trips, while multi-trip coverage is better for those who travel frequently. For a year-long international trip, consider an annual policy.

How Much Is Travel Insurance?

Expect to pay between 4-8% of the cost of your trip for a comprehensive travel insurance plan. (This is according to the U.S. Travel Insurance Association). Your plan’s price will depend on the following:

  • The cost and length of the trip: Longer and more expensive trips have higher policy costs.
  • The destination: If you go to a place with higher healthcare costs, your insurance costs may rise to reflect this increase.
  • Medical conditions to be covered: Pre-existing conditions coverage costs extra if you want them to be covered.
  • Amount and range of coverage: The more risks you would like covered in the policy, the more expensive it will be.
  • Your age: The older you are, the pricier the coverage will be.

When is Travel Insurance Unnecessary?

There are certain situations where travel insurance may not be necessary.

The trip is inexpensive

For short and inexpensive trips that you make frequently, it may not be worth purchasing travel insurance, as your travel expenses are minimal and may not be worth filing a claim for. Spending $24 on insurance for a one-way ticket may be costly.

Some costs may not require travel insurance for reimbursement. Hotel accommodations and plane, train, or bus tickets may be reimbursed by going to management. You may either get a refund or credit for future travel. Travel insurance is better used if the travel provider cannot or will not reimburse you.

Your trip already has protection benefits

You may not need travel insurance if your homeowner’s or auto insurance policies already provide similar coverage. Check if your existing policies cover property damage, medical expenses, and rental car liabilities. Some credit cards also offer travel benefits and protections when used to purchase your trip.

For example, the Chase Sapphire card offers primary CDW coverage. For more information on travel rewards cards, stop by our Travel Rewards Credit Card. Review each card’s benefits and exclusions to select the most appropriate card for you.

You took too long to purchase the insurance

Ideally, travel insurance should be purchased within 10-15 days of making the reservation. Past this date, you’ll pay a higher premium or settle for reduced benefits. Delayed purchase of travel insurance can be complicated by:

  • Changes to your work or personal circumstances
  • Exclusions due to predictable catastrophic events, like a hurricane.

Travel Insurance 101: How to Make the Right Choice

If you still think that you must get travel insurance, the next step is to choose the most appropriate policy. Choosing the right type of insurance and the issuer that meets your budget and requirements takes some work. Keep these points in mind.

Who’s underwriting and issuing the policy

Some tour operators and cruise ships offer their policies to customers. The problem is that the policies are only good if the operator or cruise line is in business. Consider using policies endorsed by a trustworthy third-party travel insurance company.

Where you live

Like other insurers, travel insurers are licensed per state. States, where more travel insurers are licensed have more options than others.

How often do you travel

Consider a multi-trip or annual insurance policy if you travel frequently. Although the initial cost is higher, the daily cost per trip is lower. If you travel less often, a single policy may be a better option.

How much you spend on travel

Consider the total cost when planning a trip. Those with health concerns or who plan on risky activities may benefit from comprehensive travel insurance. It’s worth spending a little extra for peace of mind.

Where you travel

Consider buying medical and evacuation coverage when traveling abroad. Healthcare costs can be expensive, and international travel insurance can help cover the costs of medical evacuation or repatriation in the event of an emergency. It can bring peace of mind to you and your loved ones.

What do you plan to bring on your trip?

When traveling, pack for the season and consider getting baggage insurance to protect expensive items like electronics and jewelry. It can be purchased as a standalone policy or a supplement to existing policies. Review home insurance policies before purchasing to ensure coverage.

When you make your major travel expenses

Generally, travel insurance companies give the best benefits when the insurance and tickets are purchased close together. Each insurer may have a different window to make the purchase. Delays may exclude carrier bankruptcy and medical coverage for pre-existing conditions from your policy.

What is your professional and personal situation?

You should assess your professional and personal situations before purchasing travel insurance. Your job security, home situation, and personal and family health all factor into the likelihood that you will complete the trip.

What risks do you expect to encounter

It’s important to know the risks of your destination when traveling. For example, tropical areas may have more mosquito-borne illnesses and medical emergencies. Get coverage tailored to your risks and check the U.S. State Department’s travel bulletins for civil unrest. Additional insurance may be needed in these situations.

The Final Thoughts on Travel Insurance 2023

Whether you purchase travel insurance for your next trip is a personal choice. The best decision for this trip may not be appropriate for your future travel. You should always ensure you have adequate coverage. Ask yourself the following questions:

  • What’s the worst that can happen?
  • How likely is it to occur?
  • Do I have coverage for that already?

Ensuring you have adequate coverage before embarking on your travels is crucial. If your policy or credit card provides sufficient coverage, then travel insurance may not be necessary. However, it is imperative to double-check the benefits window to avoid any potential gaps in coverage. In most cases, it is highly recommended to obtain travel insurance for maximum protection.

Last Updated: July 28, 2023

Roman Zelvenschi

I started a digital marketing agency Romanz Media Group Inc. 12 years ago. Running my own business quickly taught me the importance of cash flow. Making sales was not enough, I had to have money in the bank to pay the vendors, staff and personal bills.

During those early stages of the company I learned how to get creative with debt and to save on interest cost. I paid for everything I could with a credit card to both get more points and to extend the payment date by 25 days (credit card grace period). I then utilized a 0% balance transfer offers to rotate this debt.

I learned a lot during this process and made a lot of mistakes. My key lesson is that the most important part of being financially independent is how much I managed to save, rather than how much I earned. Staying disciplined with savings and tracking spending is not easy and I tried many different methods to stay on track.

FinancialFreedom.Guru is a side project where I and my staff are trying to share the practical knowledge on how to understand finances and to build wealth.