By Michael Giusti, MBA
Even during this summer of “love-hate travel”, a time when an influx of Americans are eager to book new trips despite high prices, things can go wrong. And when things go awry during a long-awaited trip, having an insurance policy can go a long way toward making things right.
From flight cancelations to flighty home-sharing hosts, and of course, illnesses, travel insurance can help cover unforeseen costs, and could even help get the trip back on track. And that could be a good thing with so many people planning to take a trip this summer.
According to the Transportation Safety Administration, capacity at airports across the country is ramping up in anticipation for summer 2022 travel to exceed the numbers of 2019.
And according to the U.S. Travel Association, travel spending for 2022 is projected to exceed pre-pandemic spending by 3%.
Passenger counts aren’t the only thing climbing — costs for travel are going up this summer, too. According to the St. Louis Federal Reserve, airfare is up 38% so far this year. And drivers won’t find relief, either, with gas prices up 48% compared with last year.
Still, people are determined to travel, and so understanding when travel insurance makes sense is in their best interest.
In its most basic form, travel insurance covers three main areas — cancelations, interruptions, and unexpected medical costs.
The cancelation portion kicks in to cover any non-refundable upfront costs in the event the trip is called off due to unforeseen, and covered, reasons.
Cancelations are covered for things like weather events — say a hurricane or a wildfire rips through your resort the week before you are set to leave. They also cover you if you or one of your traveling companions fall ill and can’t make the trip. Many policies cover you if there is a death in the family. And jury duty is even typically covered.
What isn’t covered by standard policies is fear of travel. Say you are worried a hurricane may hit, or there are wildfires in the area, but your resort is still open, or there is a COVID outbreak in the city, and you are no longer willing to risk it. Because those cancelations would be your choice, the standard travel policies won’t help.
The interruption portion covers things like a canceled flight forcing an overnight hotel stay, or a missed cruise departure requiring transportation to the next port of call.
Interruption policies also reimburse you for missing luggage.
The biggest thing to impact travel recently is obviously the COVID-19 pandemic. But in 2022, many of the original travel restrictions are beginning to be lifted, testing requirements are being dropped, and borders are finally opening back up.
But one holdover from the pandemic is a travel insurance requirement by many destinations, including in many European, Asian, and Latin American countries.
The idea is that if you get sick while you are there and have to quarantine, you would have a policy to cover the costs of that extended trip. A travel policy also assures the countries that they won’t get stuck with your health care costs.
But the pandemic isn’t the only thing affecting travel this summer. Unfortunately, travelers also have to take war and international conflicts into consideration. And that is especially important because most travel insurance specifically excludes claims brought on by acts of war.
Ukraine is the highest-profile conflict zone, but it isn’t the only one. According to the State Department, there are several areas of the world, including Hong Kong, parts of Africa and Central America where tourists should give their itinerary a second thought.
While war zones aren’t covered by travel insurance, natural disasters should be. That would include earthquakes, hurricanes, floods, or landslides, like what tore through Yellowstone National Park earlier this summer.
Cancel for Any Reason
While fear of travel isn’t covered by travel insurance, it would be covered if the traveler opted for a cancel for any reason policy. These are add ons available through most travel policy providers.
The downsides include their costs — they tend to cost significantly more. Plus, they are much less generous, only refunding a portion of the trip — say 70%, depending on the policy.
But, if a traveler is particularly worried about traveling, and is not sure their reasoning would qualify as an unforeseen cause, cancel for any reason policies could make some sense.
As a class of policies, cancel for any reason policies saw a dramatic increase in popularity during the pandemic when city-wide outbreaks made travel unappealing, but that wouldn’t be covered by a traditional policy.
The health care portion of the policy covers you if someone covered gets sick during the trip. The health insurance is secondary to your primary policy. So, say you get food poisoning and have to go to an out-of-network urgent care. The travel health policy will help cover those higher deductibles and copays after your primary health insurance picks up its part.
This is especially valuable for international travel, where your policy may not even cover you.
The health care provision also covers medical evacuation — like if you are in a country that doesn’t have adequate resources to treat you, or if you are in a remote location and need to be flown to the nearest city for care. While this is a relatively rare instance, when it is needed, it is extremely costly, making this portion of the policy quite attractive.
To Buy or Not to Buy
To buy a travel policy or not to buy is a question that often comes down to the specifics of each trip.
First, consider whether your destination requires it. If you want to go to the Bahamas, then travel insurance isn’t even a question. The country requires it.
Next, think about health concerns. If your home health policy gets spotty out of network, then health coverage becomes more valuable.
Then look at how you are being asked to pay.
Plunking down several thousand dollars up front for a cruise may be an excellent trigger for a travel insurance policy. The same goes for a week-long beach condominium that requires you to pay up front. That un-refundable deposit should make a travel insurance policy attractive.
But some other scenarios are less cut-and-dried.
Say you are flying to an Airbnb, and the owner allows cancelations and full refunds up to 48 hours in advance. If you have to cancel, the flight would likely give you credit, and you have a better chance to know you will have to ask for that refund two days before you go, minimizing potential risk. Obviously, an emergency could still pop up on the day of travel, but that is up to each traveler how much risk they are willing to take on.
When it comes to rental cars, the question of whether to get insurance comes down to the traveler’s home auto policy. As a rule, auto policies extend to rental cars. But, say there is some minor damage — a chipped window or a dented fender — would you want that charge against your insurer, translating to higher premiums, potentially for years? Avoiding that risk may make getting the extra layer of insurance more logical.
So if a traveler is heading to the 2022 World Cup in Qatar, for example, the question of whether to get a travel insurance policy comes down to how their health insurance would handle a medical emergency overseas, and how much un-refundable down payments need to be made to secure the trip.
How Much Does Travel Insurance Cost?
A few factors play in to how much a travel policy is going to cost.
The first factor is how much the trip costs. That is because most policies are priced as a percentage of the total cost, which makes sense because bigger trips represent bigger risks for the insurers.
But more goes into the pricing formula than just overall costs. The travelers themselves play in here. How many people are covered by the policy? If there are more travelers, the chances of an unforeseen event are multiplied by each traveler.
The age of the travelers comes into play as well — usually in a stepped pricing model. So, if the policy has one price for 18- to 24-year-olds and another for 25- to 38-year-olds, they typically charge people in the younger end of each of the ranges the same as the older end of the ranges. And as a rule, older travelers are more expensive to insure.
The destination comes into play as well. A trip to a major city, with loads of resources and backup travel options will tend to cost less than a remote destination.
Travel policies vary significantly, so it would behoove travelers to not just automatically click “buy” when they are checking out for the trip. The travel website may not have the best coverage or the best price. But at the same time, don’t rule it out.
The best practice is to do a quick shop around on the web while the vacation package is still in the shopping cart.
Premium is a big factor, of course. But making sure the policy has coverage for the part of the trip the traveler is concerned about is worth that extra shopping time. Assuming the health care portion should be fine, for example, may be a bad idea.
But do shop for the travel policy around the same time as the main trip, because many carriers won’t even offer coverage outside of a brief window of when you bought the trip. If you wait a few months and then decide coverage is needed, that may be too late.
For the remainder of 2022, a few things seem likely. First, travel will likely stay a priority, even with gas prices and airfare prices as high as they are today.
Airfare may come down, depend on airline staffing, and whether they restore some of the routes and aircraft that are getting sidelined of late. The airlines will likely still struggle with fuel prices for some time, though.
More people are taking cruises, but the cruise industry was absolutely waylaid by the pandemic. Numbers are nowhere near where they were in 2019.
Overseas travel is likely to continue its slow resumption, but that may hinge on the public’s perceived risk of the pandemic, as well as nations further lifting travel restrictions.
But regardless of whether people ramp up their travels, the fundamental of whether a travel policy remain: health risk, destination risk, and un-refundable upfront costs should drive most decisions.
Michael Giusti, MBA, is analyst and senior writer for InsuranceQuotes.com