How travel insurance can—and can’t—help when plans change

You’ve dreamed about this vacation for months, maybe years. You’ve researched it. You’ve saved for it. And now, due to reasons out of your control, you have to bag it.

That scenario can hit anyone at any time. But over the past few weeks, it’s happened at an unprecedented rate as countries race to contain the spread of coronavirus. The virus has upped the risk factor for virtually all forms of travel. And in response to the constantly evolving crisis, airlines and hotels have become increasingly flexible about rebooking and credits, so it may be possible to rescue your plans—if you wait on hold long enough.

It’s also made a lot of folks wonder: Would I not have to worry about this if I just bought travel insurance?

According to the U.S. Travel Insurance Association, Americans spent nearly $3.8 billion on travel protection plans in 2018, up from $2.8 billion in 2016. Those numbers are likely to spike even higher this year due to anxiety over coronavirus. But as everyone in the travel industry has been repeating, insurance won’t necessarily help right now, even if you bought it long before Purell was selling out in stores.

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What kind of policy protects you?

“Fear is never covered,” explains Helen Prochilo, a Long Island travel agent. So if you want to bail on a trip because you think you could potentially get sick, you’d better have a Cancel For Any Reason (CFAR) policy. While the cost of a standard policy usually starts at about five percent of your total trip cost, a CFAR policy tends to push that up by about 50 percent. To insure your $6,000 summer trip to Norway would cost as little as $300 without CFAR, but would likely be upwards of $450 with it. In exchange, holders can recoup up to 75 percent of their losses as long as they back out of their trip at least two days before departure.

Prochilo usually needs to break the bad news to her New York clients that they are barred from purchasing CFAR, but New York Governor Andrew Cuomo announced on March 6 — in light of complaints due to coronavirus — that residents will now have that option. (But, at least for now, these policies are only available from a handful of insurers and remain somewhat tricky to get.)

These super-flexible policies make sense to Consumer Federation of America insurance expert Doug Heller. “A consumer can understand them,” he says, noting he’s purchased a CFAR policy when buying plane tickets to a meeting that seemed likely to get canceled. Want to find a regular policy that otherwise covers such a commonplace issue? Good luck. “My problem with travel insurance is that usually, it’s not worth it because of the narrowness of the coverage,” he explains.

How insurance can—and can’t—help

Calculating whether to shell out for any insurance depends on both how much the trip costs and the value you place on your peace of mind, notes Prochilo. She tells clients that if they can afford to lose everything they paid for their trip and foot the bill for hospital bills in another country, then they don’t need insurance. Although she doesn’t sell insurance, she often finds herself having to explain it to travelers, who generally are uneducated about their options. She recommends that clients call insurance companies to ask specific questions before buying. “It’s confusing even to us,” she says.

The biggest reason people rely on their policies is due to illness, Prochilo says. The problem might arise beforehand, say breaking an ankle the day before a big ski vacation. That’s when trip cancellation protection can be handy.

But Prochilo’s most dramatic client stories come from incidents when folks need to rely on medical coverage. One man got in a moped accident in Bermuda and racked up thousands of dollars in bills. Another client ended up in a hospital in the Dominican Republic for parasites. In situations like these, she says, having no international health coverage is a major problem. And that’s pretty common for Americans. (For example, Medicare covers very little abroad.)

An American couple on a cruise in Mexico last year made headlines when their trip to the emergency room left them trapped until they could pay a $14,000 bill. Filmmaker Tyler Perry came forward and covered their bill, and they came home. But in case you don’t want to depend on a celebrity intervention, a travel insurance policy could also do the trick.

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Comparing costs and benefits

The key? Read the fine print, says Stan Sandberg, co-founder of Travelinsurance.com, one of several websites allowing customers to compare policies from multiple providers. Others include Squaremouth.com and Insuremytrip.com. Type in your destination, travel dates, total cost, and age of travelers, and these sites offer policy options at various price points. (You’ll notice prices shoot up for those over age 70.)

Policies greatly differ by how much protection they offer, Sandberg says, so it’s important to do your research—and do it early. To nab a CFAR policy, for example, you need to lock it in within a certain number of days after the initial trip deposit date. If you have health problems, you’ll likely want a policy with a pre-existing condition waiver. Traveling to a remote corner of the world? Make sure the emergency evacuation coverage is high.

Trip cancellation tends to be the priciest element of travel insurance, Sandberg says. If you want a cheaper option that just covers medical care and evacuation, enter a trip cost of $0 when you calculate or purchase a policy.

Annual subscription options are available for frequent travelers. Some companies specialize in emergencies, such as Medjet, which, in addition to catering to business and leisure travelers, offers membership for expats and students studying abroad.

Doing such a deep-dive analysis isn’t likely when you’re clicking a yes/no box after buying a plane ticket, says Heller, who notes that online travel websites often steer customers to a particular insurance plan and policy. “It’s bought without shopping most of the time,” he says. “The reason those companies get on the website for Expedia is they’re paying—call it ‘commissions’ or ‘kickbacks.’”

Your credit cards could help

If you do your homework on insurance, you may find you’re already covered by your credit cards. Some of them pay out for trip cancellation and interruption, delayed and lost baggage, rental car collision damage, travel accidents, and more.

Heller says he reviews his contracts before a trip so he knows exactly what each card can offer in a specific situation. That way he knows which card offers the best protection for care rentals, flight cancellations, or whatever. “It’s worth educating yourself on the phone. It’s hard to read these policies even for someone who knows the industry,” he says.

But don’t just assume your card has enough coverage, warns Prochilo. She had a client planning a $14,000 cruise who insisted her credit card would protect the trip no matter what happened. Then Prochilo checked her policy. It had a cap of $3,500. The client purchased travel insurance, which turned out to be a smart choice when her husband developed pneumonia right before the trip.