Planning a Vacation This Year? How to Decide if It's Worth Getting Travel Insurance

How much did you spend on your last vacation? How much money would you have lost if you had to cancel the day before you left? If the thought of losing that much money left you queasy, you might want to consider buying travel insurance before planning your summer trips.

After all, you can lose a lot of money if your vacation is unexpectedly cancelled due to weather, mechanical issues, injuries or illness.

"Travel insurance will protect your investment," said Winnie Atterbury O'Keefe, president and founder of Whimsie Luxury Travel. "You can't get your time back, but insurance will protect your monetary investment."  

Airlines must provide automatic refunds for canceled flights or domestic flight delays longer than three hours and international delays longer than six hours, according to the Department of Transportation's automatic refund rule. But you can only claim your refund if you don't rebook. 

That legislation also doesn't address other travel-related costs, like a having to cancel a hotel reservation or trip cancellations for other reasons like a sudden illness. You could sink thousands of dollars into a single trip, so it's worth looking into travel insurance to recoup some or all of your costs. 

But what if you have a credit card that offers travel insurance or if you added trip protection when you booked on Expedia? Should you still get travel insurance?

We'll break down what travel insurance actually covers, how it differs from trip protection and how much it costs.  

What is travel insurance?

Travel insurance is a state-regulated insurance policy that protects against financial loss if your trip is canceled or delayed, if your baggage is lost or delayed, or if you need to cancel your trip for specific reasons that will be outlined in your plan. Travel insurance may also help cover medical costs if you are sick or injured abroad and require medical treatment.  

Travel insurance is also underwritten by an insurance company. It provides financial and medical coverage and reimbursement, differentiating it from trip protection or credit card travel insurance. 

What does travel insurance actually cover?

The typical travel insurance policy consists of two elements: trip cancellation services and health costs.

Trip delays or cancellations

If you're unable to travel due to an unforeseen event, travel insurance will reimburse you for the nonrefundable upfront costs, like flights and hotel reservations, that otherwise can't be refunded. Unforeseeable events typically include things you have no control over that prevent you from traveling, such as inclement weather, an injury or sickness. Your specific travel insurance plan will detail what types of cancellations you will be reimbursed for. 

Health expenses

The second portion of the typical travel insurance policy covers health costs if you're outside your home insurance network while traveling. This often includes doctor's visits for smaller illnesses, like a stomach bug, as well as emergency services, including medical evacuations. Your travel insurance company will pick up the tab for whatever your health insurer won't cover (depending on your plan and deductible). Read the fine print to ensure this is included in your plan.

However, be aware that your travel insurance will not cover you for extreme or illegal sports and activities. If you break a leg while skiing in the Swiss Alps, your travel insurance should cover treatments since that activity is sanctioned and expected. "But if you're bungee jumping off the Golden Gate Bridge or paragliding off the Matterhorn in Switzerland, you probably will not be covered," O'Keefe said. 

Trip protection vs. travel insurance

We've covered that travel insurance can offer financial coverage for rental damages, lost luggage, flight delays, medical bills and ticket cancellation. However, trip protection, also called travel protection, usually only lets you change, cancel or refund a specific purchase, such as a flight, hotel or cruise. 

Hotels 

You can buy hotel protection when you book through third-party sites like Expedia. You may also have the option to book a refundable room. Refunds may be available up to the day of your trip but, more frequently, they are available up until a few days before your booking. If you book through a travel agent, ask if your hotel stay is refundable and, if so, how long do you have to cancel.

Airlines

Airlines may also offer refundable or non-refundable tickets. When you purchase a refundable ticket, you can change or cancel your flight at no additional cost. However, read the fine print carefully because if you use frequent flyer miles or credit card points to purchase your flight, you may not get those points back if you cancel or change your flight. 

Cruises

Cruises typically offer their own trip protection plans, but experts agree that buying a separate policy may be worth it. "Travel advisors I know who book many cruises always, always sell a policy outside of the cruise lines' [protection]," O'Keefe said. 

According to Berkshire Hathaway Travel Protection, cruise-specific travel insurance may offer specific benefits: 

• More robust emergency medical coverage
• Cruise disablement protection
• Emergency medical evacuation with higher limits
• Higher coverage for lost or damaged baggage

Credit card insurance vs. travel insurance 

Premium travel credit cards may also cover some travel expenses as a card member perk. This coverage is usually labeled as travel insurance but may offer less coverage than if you purchased through an insurance agency. Review your credit card's travel protection policy to make sure you have enough coverage before booking a trip.

Options for travel insurance 

To ensure you're purchasing a true travel insurance policy, don't just look for the word "insurance" -- look for a well-known travel insurance brand that works with a travel insurance underwriter, like Allianz Travel. 

You can also purchase through an insurance portal, like InsureMyTrip. Reputable travel insurance providers range from nationally known insurance companies like Nationwide, AXA Assistance USA and Berkshire Hathaway Travel Protection to specialized companies like WorldTrips and Travelex.  

Additionally, make sure the company you're purchasing from is listed on AM Best, a credit rating agency, and the US Travel Insurance Association.

Cancel-for-any-reason insurance

Cancel-for-any-reason insurance, or CFAR, lets you cancel for any reason and receive reimbursement, going beyond the bounds of typical travel insurance. 

However, these policies are more expensive and they typically don't cover 100% of your costs. You also have a limited time to purchase this insurance.

"CFAR can reimburse up to 75% of the traveler's trip cost in the event they need to cancel for a reason otherwise not covered by their policy," said Megan Moncrief, chief marketing officer at SquareMouth.com, a travel insurance quoting and comparison engine. "It costs an additional 40% to 50%, and is only eligible within 21 days of the first booking toward the trip."

What does travel insurance cost?

The amount you'll pay for trip insurance depends on a few factors:

• Your age
• Cost of your trip
• Duration of trip
• Your home state
• Your coverage selections (flights and hotels, prepaid excursions, medical etc.)

Medical travel insurance costs more for older travelers, but the destination doesn't typically matter, according to O'Keefe. 

"I just wrote insurance for a 62-year-old CEO who went to Thailand and a 55-year-old couple who went to Italy, and I didn't see much difference," O'Keefe said. "But the travel insurance for a 22-year-old newlywed couple is going to be less." 

What claims are covered by travel insurance?

Travel insurance covers a variety of events, but it may not cover named storms, travel to war-torn countries or extreme sports. Read the fine print to determine what circumstances may not be covered. 

Today, most travel insurance covers cancellations if a traveler contracts COVID-19, the flu or any other contagious disease. Unforeseen events caused by preexisting conditions may also be covered, depending on your policy, according to Michael Giusti, an analyst at Insurance Quotes. 

For instance, if you have asthma and experience an attack, that would probably be counted as an unforeseen event. However, traveling during your eighth month of pregnancy would likely not be covered.

Talk to the insurance provider and read the fine print if you have any questions about your coverage. 

Should you purchase travel insurance?

If you've put down large deposits for your trip, especially for all-expenses-paid trips like cruises, it may be worth purchasing travel insurance. 

On the other hand, if you have paid a few dollars more to book refundable airline tickets and hotel reservations, and haven't purchased pricey excursions or tourist attractions in advance, you may not need travel insurance.

For expensive vacations, cruises, and trips abroad, travel insurance can give offer you some protection for your investment plus potential medical coverage. Knowing that you have that kind of coverage might even help you relax and enjoy your trip a little more.