When is it a good idea to buy a full-feature travel insurance package?

by Wayne Wirtanen (First of two parts. Go to part two.)

The best time to consider purchasing a standard, full-feature travel insurance package is when you think that you may have a higher-than-normal possibility of filing a claim for trip cancellation/interruption for a medical reason.

To buy or not to buy: that is the question (Thanks, Will)

How is your and your family’s current health?

Is 85-year-old granny in frail heath? Have you or a family member had a serious health problem in the last six months or so and could there possibly be a recurrence prior to or during your trip?

If so, then this is definitely the time to consider purchasing a full-feature trip-cancellation/interruption policy, that is, one that covers trip cancellation/interruption, medical costs, emergency medical evacuation, luggage losses, etc. Be sure to get a waiver of the preexisting-condition clause.

For the decision to be completely rational, it should be made based on costs versus the likelihood of needing to file a claim. Insurance companies will pay for cancellations caused by a specific list of problems, which commonly include unusual reasons such as job loss, traffic accidents, fire, flood, etc.

Be aware, when making the purchase decision, that the insurance company is guaranteeing to reimburse only your actual monetary loss. If you were to receive some refund from the tour/cruise provider, airline, hotel, etc., then logically the insurance company’s reimbursement would be that much less.

The most frequently occurring reimbursable reason for canceling or interrupting a trip is a medical emergency for the policy holder, his or her traveling companion or a close family member.

The US Travel Insurance Association (UStiA) reports that American travelers recently have been purchasing travel insurance at a rate of one billion dollars annually. Too many of these travelers buy this insurance automatically without bothering to review cost/benefit considerations. And then they read their policy only when it comes time to file a claim — a little late to find out whether or not their claim is likely to be paid.

What are the odds of having an overseas medical emergency?

As with any insurance, it’s all about the odds and the statistics.

You don’t have to be an actuary or worry much about the details, but the principal thoughts to keep in mind when considering the purchase of a travel insurance package (or any kind of insurance coverage) are the following: ‘What is the likelihood that I might need to file a claim?,’ ‘What is the dollar amount of risk in not having the coverage?,’ ‘Is it a catastrophic loss or one that could be absorbed without too much pain?’ and ‘Am I satisfied that the cost of the coverage seems to make sense, considering those factors (and the peace of mind that the protection provides)?’

My research, developed from the Office of Travel & Tourism Industries in the US Department of Commerce as well as from the State Department and a travel insurance company, suggests that the odds of an American traveler being hospitalized for any reason on an overseas trip is less than 1½ hospitalizations in 1,000 trips! This would include relatively minor problems such as a broken bone or a wound that required stitches, etc. The most common cause of a medical problem on a trip is someone falling, and usually an emergency medical evacuation is not required.

Some years ago, a major travel insurance company provided me with the statistic that in a two-year period they had had about one emergency medical evacuation for every 1,800 policy holders. Repatriations to home destinations are more rare than that.

The average costs of emergency medical evacuations are in the range of $10,000 to $20,000, with many being lower and some being higher. A very exceptional evacuation from China a few years back ran the cost up over $100,000!

Why buy insurance coverage of any kind?

The reason we buy auto, home and health insurance is the peace of mind provided in knowing that they protect us from potentially catastrophic losses. We feel that even though these protections are relatively expensive, they are considered absolutely necessary.

What, then, about travel insurance?

A representative of a travel insurance company once told me that only three percent of the purchasers of their full-feature travel insurance packages actually canceled a trip. That works out to about one out of 33 trips. (Those three percent were, of course, very glad that they had purchased travel insurance!)

Be aware that claims for trip cancellation are paid on a prorated basis based on the interval between the date of cancellation and when the trip actually starts. Full reimbursement of the cost of a trip is made only if the trip is canceled so close to the departure date that the tour company does not refund any of the payments.

Of those three percent of policy holders who canceled a trip, possibly only about half of them would have lost the full amounts and received full refunds from the travel insurer.

Although the Consumer Reports Travel Newsletter has subsequently ceased publication, their January 1999 issue had a segment entitled “Travel Duds for 1999 — Don’t Fall for the Traps.” Their opinion and recommendation regarding the purchase of a full-feature travel insurance package was as follows: “What price peace of mind? That’s the dilemma in deciding whether to buy trip-cancellation or -interruption (TCI) to cover losses if you can’t begin or complete a trip as planned. While it protects you against losing prepayments and deposits, it’s grossly overpriced.

“We recommend it only to cover losses that you cannot afford. If you can afford to forfeit a modest deposit or advance payment, don’t buy it at all. But give it a look if you want to guard against full or partial loss of payments you’ve made for a major tour or cruise.”

Travel insurance sales technique

To sell comprehensive travel insurance packages, travel insurance companies’ advertisements often focus on one of the most common potential hazards that might befall a traveler while overseas: an accident or an unanticipated illness.

An ad that might be run would probably be based on an actual incident, something like this: “Mr. Traveler fell on a rough sidewalk in Iquitos, Peru, and is in pain with a possibly broken hip. Mrs. Traveler is in full panic. She does not speak Spanish and is not sure of the quality of health care available locally. Who can she turn to for assistance?”

It’s true, as the advertisement would claim, that a call to the toll-free phone number listed in the full-coverage travel insurance package would activate welcome and effective assistance in finding appropriate medical care or in getting emergency medical evacuation as required.

Full-feature travel insurance packages usually cost five percent to eight percent of the cost of the trip. If Mr. and Mrs. Traveler had paid some $5,000 each for their trip to Peru, they probably paid some $500 to $800 for their two travel insurance packages. (The travel agent who said, “You know that you certainly should buy travel insurance,” picked up an easy extra $100 to $200 in commission on the sale.)

What the advertisement wouldn’t mention is that for most travelers, protection for medical expenses and evacuation assistance, as described above, does not require the purchase of an expensive travel insurance package!

Travel insurance and the volcano in Iceland

On policies purchased before the April 14 ash-cloud eruption from the volcano in Iceland, travel insurance companies have been paying claims on trip-cancellation/interruption losses due to ash-related problems. Most policies, however, have maximums for what is allowable regarding any expenses incurred while waiting for the skies to clear. The maximums frequently are well under $1,000 — not much help for someone stuck in London for a week.

More important is the question ‘What now?’ or, rather, ‘Will insurance purchased now cover any future volcano-related problems, including the eruption of any other volcano in Iceland?’ Travel policies vary, so ask that specific question before purchasing a policy.

The basic rule is that coverages apply only for “unforeseen events.” Since the April eruption is a “known event,” standard travel insurance purchased now will not cover losses caused by the continuing eruption of the same volcano.

Purchase of a “cancel anytime for any reason” policy (a premium coverage which costs an additional 40%-50%) MAY provide protection against losses from the continuing eruption of the unpronounceable April volcano. If you should want this protection, ask what the exact terms and conditions for the payment of a claim are and get assurance that you will be covered for the April volcano. And get this assurance in writing from the insurance company, not just from your travel agent.

For more details on travel insurance issues related to the volcano, punch up “Peter Greenberg Volcano” on your search engine.

Part two of this series suggests modest-cost travel insurance alternatives that provide, in my opinion, the most important coverage plans for the expenses of overseas medical emergencies.

Happy trails!