When is Travel Insurance a Good Idea?

In most cases, travel insurance makes little sense. You want to insure against large losses, incurring which would be catastrophic. You don’t want to buy insurance against small losses, against those you ‘self-insure.’

And small losses are rarely worth the cost to recover, remember that a covered event doesn’t just generate a check, you have to navigate the bureaucracy of the insurer in order to obtain payment, which at the very least is going to involve filling out paperwork and waiting.

Travel insurers offer the policies because they’re profitable. Travel websites and travel agents sell them because they’re profitable to them, in fact commissions can exceed 40%.

Further, most of the benefits of travel insurance are relatively modest, it may not make snese to buy a policy on the chance you need to spend up to $200 on meals during your delay, or even with $10,000 in emergency medical coverage. (Check whether your existing coverage applies to your trip, it often does, and if you’re buying insurance it’s probably for peace of mind against ‘really bad things’ and for which $10,000 may not hack it.)

As Scott McCartney reminds us, travel insurance is rife with exclusions.

This week’s Middle Seat looks at the gotchas and pitfalls of travel insurance, including a chart with some recommendations on how best to protect yourself from particular worries. Standard travel insurance policies are heavy on exclusions –- reasons a trip gets canceled that aren’t covered. Unless you read those exclusions, you may be buying a policy that doesn’t cover the very instance you want covered.

Consider a travel insurance policy for a ‘trip of a lifetime’ that’s costing you in excess of $10,000 and being booked a year out. Although most folks booking such trips could and probably should self-insure (i.e. don’t buy the insurance, as if you’re booking $10,000 trips you can likely afford to do so more than once). But we often buy insurance for reasons that are not logical, calculating, but instead emotional.

Rather than the adverse selection problem identified by economists, that people who are most likely to need the coverage are the ones most likely to buy it, it turns out frequently that the most risk adverse consumers are the ones most likely to buy it. And as much as buying insurance, they’re buying the comfort of knowing they won’t be out a lot of money when unforeseen circumstances arise. They’d rather be out a medium amount of money now instead.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community Milepoint.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. I think you are leaving out the “long term travel” case. Consider someone spending 3 months in SE Asia for example, where they are between jobs and without health insurance, thats a good example of where it would make sense for Emergency Health coverage and Emergency Evacuation Coverage.

  2. Gary,

    My wife and I did six weeks in SE Asia on award tix and points redemption. We did have a handful of paid stays, but other than that, there really was nothing to insure, other than medical expenses. For health coverage only, the most reasonable policy I found cost $300.

    My wife did need to spend a night in the hospital with a case of Bali Belly, and when we got home, my insurance through work covered everything but the copay. So $300 saved.

    We’re considering booking the PH Maldives via the stay certificates (probably won’t go, but still considering it). To make a reservation using the stay certs, the PH Maldives wants you to prepay a deposit which is equivalent to the Hyatt Daily Rate for each night of stay. I know you’re familiar with the property, so you know that that costs $1000+ per night. A 1-week stay would require a $7000 deposit!

    If I were to do that, I’d have to take out a “cancel for any reason with 100% refund” insurance policy. I’m not risking the loss of $7k in this circumstance. Why? I can’t afford it! I did price one out for $800 that would cover this trip.

    BTW, I disagree with your logic on paying for the trip of a lifetime… by definition, it only happens once, and most people likely save for years for it. Not sure how you can say that they can afford to do it more than once in that circumstance. Even if they could, they’d have to take several trips before self-insuring makes sense.

  3. important to note if you use amex, will not qualify if reward seats, they’ll still take the premiums out of your amex account as soon as an airline charges for the surcharges on the reward ticket so you’ll pay the premiums if enrolled, but amex insurance will not accept any claims if the ticket wasn’t paid

  4. Perhaps you should just add that you are specifically talking about Americans. For people in other parts of the world, travel insurance is highly recommended in case of illness/ accidents, because of non coverage outside of home country.

  5. @auri indeed, my comment about the usefulness of private insurance abroad only applies in places that have… private insurance.

  6. One coverage that is worth considering is “MedJet Assist”. It’s not insurance – it covers evacuation back to the US if you get sick while travelling. Good peace of mind when travelling in the third world or in remote areas, especially.

  7. medical evac is the insurance I am typically most interested in. Especially when traveling in less developed parts of the world where care of a reasonable standard isn’t readily available. If I am going to western Europe or even Australia it’s probably not something I need. But if I am going to be in Bhutan or Burma or Cambodia I want to at least be airlifted to Bangkok in case of serious medical emergency.

  8. Travel insurance often includes a good cancellation policy. Helped me once when my daughter got 103F fever a day before the trip…

  9. @Gary, I can assure you that Australia has private insurance (and a pretty decent public system) and that I would not travel without travel insurance. In fact, the Australian government’s official advice is “If you can’t afford travel insurance, you can’t afford to travel.”

    Two years ago I dislocated my shoulder snowboarding in Co. My travel insurance paid for my shoulder to be relocated; several orthopaedic surgeon visits (including an MRI); rehab; and then six months later, a flight to Australia so that I could have my shoulder operated on (it was cheaper to fly to Australia and have it operated on), and a return flight to the US. My out of pocket? $100. My time invested? A couple of phone calls and two pages of paperwork.

    Love your blog, but this post definitely is limited in who it applies to!

  10. @Gary do you know of an annual trip cancellation insurance policy that would cover all trips taken within a given year? I know they exist but don’t know who offers them.

  11. In full disclosure, I work for a company called Protect Your Bubble. We’re a specialty insurance brand that offers travel insurance. Plans provide a variety of coverage for single and multi-trip options including cancellation, interruption, medical/dental, baggage, rental car and much more like 24/7 emergency services including, consult a doctor, roadside assistance, restaurant reservations and even set up tee times through their concierge services. Our rates are competitive, starting at $14 per day. For anyone in the market, check us out at: ProtectYourBubble.com.

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