Travel Insurance | What Is It & Do You Really Need It?

Travel is one of the great joys of life.

There is nothing that compares to exploring someplace that you’ve always dreamed of going, especially when you’ve saved diligently for it.

However, nothing can spoil a trip quite like an unexpected illness or a canceled flight. This can derail your budget and dampen your spirit towards traveling again in the near future.

Luckily, travel insurance is a way to ensure that you aren’t out hundreds or thousands of dollars if the unexpected happens.

What Is Travel Insurance?

Travel insurance protects you from financial loss if something goes wrong on a trip. If you lose your bags, get evacuated from your destination, or experience a medical emergency, travel insurance ensures that you have access to assistant services and won’t take a financial hit.

These policies are meant to protect you from unforeseeable events. This is important to keep in mind before you purchase a travel insurance policy. If you schedule a vacation during a known storm warning or miss your flight because you slept in, you will likely not have your claims approved.

How Do Travel Insurance Policies Work?

travel insurance

Travel insurance policies are sold for either single trips or defined periods of time, typically one year. Premiums for single trip policies are usually 5% to 10% of the total covered cost, and annual trip premiums can range from $100 to $400.

Much like other types of insurance, travel insurance does not pay upfront. You must submit a claim after the fact, and you will be reimbursed after the claim is approved. The insurance company will require you to submit various documents, like receipts or notices of evacuation or cancellation, to verify what happened and approve your claim.

Make sure to hang onto all your paperwork and receipts during your travel. These will come in handy if you need to submit a claim to the insurance company. Many of the best travel insurance companies now allow you to submit documents online through your smartphone, which can simplify the claims process.

What Does Travel Insurance Cover?

The following are scenarios for which travel insurance can reimburse you:

Canceled Trips

The fear of trip cancellations is one of the most common reasons that people purchase travel insurance. Canceling a trip can be due to a number of factors. Some reasons that are honored by insurance companies as reasons for cancellation are:

  • Death or birth of a family member
  • Job-related obligations that conflict with your planned vacation
  • Natural disasters
  • Travel company strikes
  • Crimes committed against you
  • Serious accidents
  • Military service
  • Jury duty

Delayed Flights

Maybe your flight isn’t canceled, but it is delayed enough to cause you to miss a significant portion of your vacation.

Travel insurance will reimburse you for the cost of hotel rooms and any other nonrefundable expenses that you had planned during that time.

Medical Emergencies

Many people mistakenly think that their insurance will cover them in foreign countries. That is not always the case.

If you experience an injury during your trip, travel insurance can reimburse you for your treatment abroad. This can include medical bills and emergency medical transportation costs. This is an especially important type of coverage in countries where treatment without insurance is costly, including the United States.

Evacuation

If you are ordered to evacuate your destination due to a natural disaster or terrorist attack, travel insurance will cover the cost of return transportation and reimburse you for the rest of your stay.

These coverage limits tend to be similar to that of trip cancellation. Emergency evacuation can cost up to $50,000, and you don’t want to end up saddled with those expenses in an emergency.

Lost or Delayed Bags

Anyone who has ever had an airline lose their bag knows how stressful it can be at the start of a vacation.

Lost or delayed bag coverage can have generous limits, sometimes up to $2,000. This can help you purchase essentials to get you through to the end of your trip or until you’re reunited with your belongings.

2 Types of Travel Insurance

Travel insurance is generally sold in the form of two different policies: single trip policies and annual trip policies. Depending on how often you travel, you may benefit from one type of policy more than another.

Single Trip Policy

Single trip policies cover a single trip or a portion of a trip. These policies have generous coverage limits for trip interruption and cancellation. They are ideal for people who don’t travel often but want to make sure they get the most out of their travel investment.

Annual Trip Policy

Annual trip policies cover travel that occurs over a specified period of time, usually a year. Annual trip policies are ideal for people who travel frequently but don’t want to buy an individual travel policy for each trip. These trips don’t have to be solely for vacation. If you are studying abroad or spend long stretches away from home for work, annual trip policies offer protection for all forms of travel.

How Much Does Travel Insurance Cost?

While premiums are dependent on a variety of factors, single trip policies typically cost anywhere from 5% to 10% of your total covered travel expenses. IF you are planning to cover a flight and hotel stay that costs $2,000 over the course of a week, your premium would be about $100 to $200. If you only want to cover a $700 flight, you would pay $35 to $70. It all depends on what you would like to policy to cover.

Annual trip policy premiums are less variable than single trip policies and are charged on an annual basis with the option to renew at year’s end. Premiums can vary from $100 to around $400, depending on how inclusive you want the policy to be.

If you are looking at the premium differences and noticing that annual trip policies may be a better deal, you’re not wrong. However, many insurers will place a travel day minimum on these policies to prevent infrequent travelers from purchasing these policies instead of the single trip.

Unlike single trip policies, annual trip policies offer far less coverage for trip interruption and cancellation. This is important to factor into your decision to purchase travel insurance as trip cancellation is one of the most commonly cited reasons for filing a claim.

How Do I Choose The Best Travel Insurance Policy?

It’s important to buy a policy that suits your travel needs from a reputable company. When you go to buy a travel insurance policy, keep the following in mind to ensure that you’re getting the best policy for your circumstance.

Underwriting Matters

The underwriter makes an enormous difference in the quality of your policy. Many tour companies or cruise ships will offer travel insurance policies directly to their customers. However, if something goes wrong on the trip, they will likely not honor your claim. On top of having your vacation ruined, this can add insult to injury.

Be sure to go to a reputable third-party company when purchasing a travel insurance policy.

How Often Do You Travel?

Your frequency of travel can determine the best travel insurance policy for you. If you only take one trip a year, a single trip policy is the best decision for you.

If you travel two weeks out of the year or more, you might consider investing in an annual travel policy. Those who travel more frequently are statistically more likely to experience issues. Annual travel insurance policies protect you if this occurs.

What’s Your Destination?

It is generally recommended that you purchase travel insurance if you are traveling internationally. International travel is expensive, and there is plenty of room for issues. If a medical emergency arises while you’re abroad, you probably won’t have any way to cover it. Medical bills without insurance can be astronomical, and it’s essential that they are covered should the worst happen.

Are You Traveling with Valuable Belongings?

If you are planning an extended trip, perhaps a brief period of living abroad, you are likely bringing a lot of stuff with you. If the airline loses your bags, you could potentially lose many of your belongings with no choice but to replace them out of pocket. A travel insurance policy would allow you to replace your belongings.

Your homeowners or renter’s insurance policies may be able to cover this as well. If there is any gap in what you lose and what is covered by the travel insurance policy, these other insurance policies may be able to cover the difference.

Political, Professional & Personal Circumstances

Before embarking on your trip, assess the circumstances in your life.

Are you worried about losing your job or having to abandon the trip for a work-related event? Do you have a family member that could potentially pass away while you are away? Is the political climate in your destination unstable, potentially causing you to evacuate?

If the answer to any of these is yes, you probably will do well to purchase travel insurance.

When Should I Avoid Travel Insurance?

Travel insurance can be useful in many travel scenarios, but is it always necessary? Below are some instances when it may be better to skip travel insurance.

Traveling Within Your Home Country

If you’re from the US and traveling within the US, you don’t need to purchase travel insurance. Travel within your home country is typically less expensive, so it may not be justifiable. Your insurance will likely cover your medical expenses in whatever state you are traveling to. If you have a medical emergency, you should be fine.

When Your Credit Card Offers It

Did you know that your credit card may offer you certain insurance protections as a perk? Based on which card you have, you may have trip interruption and cancellation protection built-in. Check with your credit card company to see what kind of travel insurance protections they include. This will help you from insuring yourself twice.

If You Only Want Your Flight Covered

Knowing your rights as a passenger can help you from having to shell out for protection on a flight. If your flight is canceled, you are typically entitled to the next available seat on the next flight to your destination.

Do You Want Flexibility?

Travel insurance does not work as a way to cancel your trip if you simply feel like it’s not the best time. Again, these policies are to protect you against unforeseeable events. If you cancel at the last minute because you decide you want to save money, the insurance company will not honor your claim.

Do I Need Travel Insurance?

Like we mentioned, travel insurance isn’t necessary for every travel instance. However, it can help you from losing all of your travel savings if something goes wrong on your trip.

If you are traveling internationally or would like to guard your travel investment, travel insurance can ensure that you are protected financially.

Grant Sabatier

Creator of Millennial Money and Author of Financial Freedom (Penguin Random House). Dubbed "The Millennial Millionaire" by CNBC, Grant went from $2.26 to over $1 million in 5 years, reaching financial independence at age 30. Grant has been featured in The New York Times, Wall Street Journal, BBC, NPR, Money Magazine and many others. He uses Personal Capital to manage his money in 10 minutes a month.

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