Is Travel Insurance Necessary?
To answer this question we first need to discuss what travel insurance is and what it covers. The coverage varies depending on the policy that you purchase. Overall, travel insurance is meant to protect you against unforeseen travel misfortunes, like your flight getting cancelled due to severe weather or your baggage getting lost or stolen. Many now also cover you for acts of terrorism in any city along your itinerary. Hopefully, if you are traveling outside of the US you followed my recommendations for the 7 essential things to consider when planning an international trip, and also registered with the State department.
There are four types of coverage included in travel insurance:
Trip cancellation, delay, and interruption insurance: This reimburses you non-refundable travel costs if your trip is cancelled or seriously delayed due to a natural disaster, illness, or the carrier goes out of business. The independent and carrier-provided insurance policies offer protection up to the amount you purchased. Coverage is usually around $1,500 per person for cancellation and $300-500 a day for trip interruption. No one wants to have to change their travel plans but sometimes it is necessary. Re-booking flights and hotel rooms at the last minute can come at a hefty price. With travel insurance, any costs incurred for trip delays because of serious injury or natural disasters are usually reimbursed.
Only about 15 percent of credit cards offer trip cancellation coverage. If you own one of these cards, you might be able to skip buying travel insurance altogether, and the annual fee charged on these types of cards may be well worth it for frequent travelers. Chase Sapphire, for example, reimburses up to $10,000 for trip cancellation, as long as the reason you or the carrier cancel the trip is one of the covered causes (e.g., severe weather, military orders, the carrier goes out of business, or you get too sick to fly—make sure you get a doctor’s note to support your claim). It is also one of the few cards to reimburse you (up to $500) for reasonable expenses if your trip is delayed due to things like aircraft mechanical problems, labor strikes, or bad weather.
Baggage and personal items coverage: If someone steals something from your bag or your luggage is lost or delayed, travel insurance will pay you for your trouble, usually up to about $500 per lost baggage and $100-$300 per day for baggage delay.
Emergency medical insurance: Just as you wouldn’t want to go without medical insurance in everyday life, when you’re traveling abroad it’s important to stay covered in case of accidents or illness. This is the second most popular reason people get travel insurance. Coverage is usually around $10,000-$50,000 for emergency medical care.
Accidental death or dismemberment insurance: If you or a loved one dies on the trip or suffers a life-impairing accident (e.g., losing eyesight), this insurance feature pays out up to about $500,000, depending on the situation.
Is it Necessary?
I’ll give you two rules of thumb: Travel insurance is worth it when you’re traveling abroad and your health insurance doesn’t cover emergencies outside of your country. Or when a large portion of your trip is non-refundable (e.g., you’re buying a pricey vacation package and losing out on the cost of your trip would seriously set you back).
For everything else in between, consider how much a financial disaster it would be if something bad happened before your trip and you had to cancel (considering any non-refundable payments you may have made). Or if during your trip you suddenly had to return home.
Here’s a three-step process to decide, in case you’re still not sure:
1. Decide how much is at stake if something goes wrong on your trip. What is the total cost of all the prepaid, non-refundable tickets or deposits. Calculate how much a last minute flight change will cost. SOme airlines will allow a change for a steep change fee in addition to paying the difference in the cost of the new ticket. Your flight to Rome might have been a killer deal when you purchased it 6 months ago, but a last minute ticket will almost always be a whole lot more money. Some airlines don’t even allow any changes. Make certain that you read the fine print.
2. Figure out if your credit card offers travel insurance. If it does, read the benefits carefully. Some people wrongly assume that credit card travel accident insurance covers them in the event of any accident. In fact, I have even heard from people who incorrectly believe it provides medical coverage (for example, break their ankle during a skiing accident). I’ve never seen one that offers any medical coverage for accident or illness. Generally, it covers you as a ticketed passenger during eligible Common Carrier travel that you PAID for with the credit card – if an accident occurs, it will typically pay out in the event you die. Some only offer coverage for a FLIGHT accident. So if what you want is insurance in the event you get mowed down by a crazy driver, or suffer a heart attack-credit card coverage is not what you want to rely on during your vacation.
3. Find out how much travel insurance costs for your trip. I always use Squaremouth.com but I have also used Insuremytrip.com in the past. These sites let you select what benefits you want in a travel insurance and then gives you the results in a table that you can use to compare features and policy cost.
Primary or Secondary Coverage
Typically, the terms primary and secondary are applied to travel medical coverage and baggage coverage. When you’re making a travel medical claim, it means you should make a claim on your primary health insurance coverage first and then settle the remainder of the medical claim with your travel insurance provider.
If you’re making a claim on your baggage coverage because the airline lost your bag, you’ll work things out with the airline first and then make a claim for the remainder on your travel insurance plan. Whatever is paid out by the airline will be deducted from the amount that your travel insurance provider will pay.
If You Have No Primary Coverage, Secondary Becomes Primary
If your primary coverage is not in effect where you are traveling – and many domestic health insurance plans do not cover the medical costs for their members who need medical care outside the U.S. – then your secondary coverage with your travel insurance becomes primary by default. You don’t have to do anything except make a claim directly with your travel insurance provider.
Primary Coverage Isn’t Better than Secondary
Many travelers make this assumption, but primary coverage isn’t necessarily better than secondary coverage – it just refers to who pays first. You can choose and buy travel plans that include primary travel medical coverage, but it’s not necessary unless you have a reason for purchasing that type of travel medical plan. The benefit to buying secondary coverage is that it will cover the out of pocket costs and deductible that wasn’t covered by your primary insurance. Essentially leaving you with a zero balance.
Since my medical insurance covers me overseas, I always buy secondary medical insurance with my travel policy. This way my copay and deductible is also covered in the event of a major medical emergency.
Remember, you have to purchase the travel insurance policy before you start your trip. Every major trip insurer has a drop dead deadline by which you must purchase. In my experience, it’s within 10 days of your first trip deposit. If you lie, they will find out. Then, when it comes time to pay out you will get a bad surprise. You can book a last minute trip and still get insurance. However, also be aware that if you are traveling during hurricane season, the trip can only be insured before a storm is named.