From hurricanes in the Caribbean to wildfires on the west coast, the mid-summer months rival only the dead of winter when it comes to weather-related trip-cancelling events.
Then there may be other reasons why you need to back out of your trip, such as a medical crisis or a job loss. If you cancel after your airline or hotel’s refund deadline, you may not get any of your money back.
Even if you arrive at your destination without incident, unforeseen events, such as a car accident or food poisoning, can possibly add thousands of dollars in out-of-pocket costs to your itinerary.
That’s where different kinds of travel-related insurance can help. While it won’t alleviate the emotional stress of a cancelled or ruined vacation, it at least can limit your financial losses.
Travel insurance
Travel insurance enables you to get a refund of the amount you’ve already paid for flights, hotel reservations, vehicle rentals or certain pre-paid activities that are cancelled by the vendor.
Most policies also allow you to cancel your trip and get your money back after the refund deadlines for airlines, hotels and auto rental agencies have passed. Eligible reasons generally include:
- Illness or injuries
- A job loss or work obligations that force you to cancel your vacation
- Jury duty
- Terrorist threats
- Epidemics
- A death in the family (not covered by all plans)
Many travel vendors offer their own cancellation insurance when you make your reservations or pay ahead of time for a flight, hotel room or vehicle. You can also buy comprehensive policies from independent insurers.
The combined costs of buying separate levels of coverage from your airline and hotel may be less than purchasing a single policy. However, the travel vendors’ reimbursement policies may be less flexible. And if you need to cancel your entire trip, you’ll need to file separate claims with each vendor. With a single policy, you’ll only need to file a single claim with one company.
Whichever approach you choose, it’s important to read the fine print of any policy to understand situations where reimbursements don’t apply.
For example, if your original flight is cancelled but you take another flight the next day, you might not be able to file a claim for the cancelled flight. And if you end up staying at the same hotel, you may or may not be able to make a claim to recover the cost of the night you missed, since technically, your trip wasn’t cancelled.
Cancel-for-any-reason insurance
You’re having second thoughts about going on that cruise you’d paid for. You’ve developed a fear of flying. The U.S. government has suddenly issued a travel advisory for a country you had planned on visiting.
Most standard travel insurance policies don’t reimburse you if cancel your trip for these reasons. However, you may be able to recover some of these costs if you spring for cancel-for-any-reason (CFAR) coverage.
You can’t buy a CFAR policy on its own. It’s nearly always an optional upgrade to a standard travel insurance policy.
While this coverage partially covers the costs of trips you cancel simply because you no longer want to go, it’s important to understand that:
- CFAR coverage doesn’t cover the full amount of your trip. Reimbursement rates generally range from 50% to 75%.
- Most policies don’t reimburse you if you cancel at the last minute. Generally, you’ll need to give at least two days’ notice.
- CFAR coverage may increase your total trip insurance premium by 50% or more.
Medical insurance
If you’ve traveling in the U.S., your current employer healthcare insurance should covermost medical costs, although you may need to pay higher co-pays or coinsurance if these services are provided by out-of-network physicians and medical facilities. Medicare will also cover eligible expenses if the provider accepts Medicare payments.
It’s a different story if you’re traveling internationally. Most domestic healthcare insurers won’t cover medical expenses incurred outside the U.S. Neither will Medicare.
Purchasing supplemental travel medical insurance can provide this coverage in the case of illness or accidents.
With some policies, the insurance companies pay international medical providers directly, while others require you to pay for services out of pocket and then file a claim for reimbursement later.
Rental auto insurance
Generally, your own auto insurance policy provides liability, medical, theft and collision coverage for any vehicle you rent in the U.S. Some credit cards also provide rental car coverage. And your homeowner’s insurance may cover replacement costs for anything stolen from your rental vehicle.
So, paying for extra insurance when you rent a vehicle domestically may not be necessary.
However, the story is different if you’re renting outside of the U.S. Many U.S. auto insurance companies and credit cards don’t provide coverage for international rentals, or some only provide it for rentals in specific countries.
Before you embark on your trip, check with your insurer to see if your international rental costs will be covered. If not, purchasing auto insurance from the rental agency may be a good idea.
The costs for this coverage will probably be less if you pay for it when you make your reservation, rather than add it when you pick up your vehicle, since many local rental agencies mark up the price at the counter.
Do your research ahead of time
If you’re considering purchasing travel or medical insurance, it’s best to buy your policy several months before your trip, since some insurers won’t let you purchase coverage within a few weeks of your scheduled departure.
It’s also important to carefully review the costs and terms of any policy you’re considering and check out the reputation of the insurer. A Google search will list any number of reputable websites that let you compare policies and providers.
This article was authored by David Jaeger and Jeffrey Briskin. David is a financial advisor with Canby Financial Advisors, a SEC-registered investment adviser. SEC registration does not constitute an endorsement by the SEC nor a statement about any skill or training. David can be reached at 508.598.1082 or djaeger@canbyfinancial.com. Jeffrey Briskin is Director of Marketing at Canby Financial Advisors.
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