Travel Insurance 101

By David Barclay | May 8, 2024

Disclaimer:  Barclay & Company Travel is neither a seller nor a provider of insurance.  I suggest you speak with an insurance broker if unsure of your needs & you should carefully review any policy documents to understand the coverage before purchasing insurance.  Below is a summary of what I’ve learned about travel insurance.  This information is provided only as a starting point for assessing whether insurance is right for you.

What is travel insurance and what benefits does it provide?

Travel insurance (sometimes referred to as trip insurance) is an insurance policy designed to provide coverage for both leisure and business travel.  Typically, the policies are purchased to cover a single trip and specify the travel dates, trip value, and travelers that are covered.  In addition to covering the cost of the trip components if the trip must be cancelled for a cover reason, most policies also provide “post-departure” coverage to provide additional coverage benefits while traveling. 

If travelers incur a loss due to a covered reason, they simply submit a claim with the required documents & receipts and the insurance company will process the claim and issue a check to the covered travelers. 

One of the greatest benefits that travel insurance provides is peace of mind for travelers.  During trip planning, it provides peace of mind when travelers are making their trip payments (which for bucket list trips can be substantial).  Making those large payments can be stressful, but travelers with insurance know they are covered if an unfortunate event forces a cancellation of their trip.  If an unfortunate event does occur (e.g. injured family member), trip insurance provides peace of mind to focus on what’s important (seeing to the needs of the injured family member) and not stressing about a large financial impact for cancelling the trip.

Types of travel insurance

This is not an exhaustive list of the options, but some of the more common types of travel insurance available.

Standard Travel Insurance
Every insurance company has a different name for its standard insurance, and there are variations in coverage, but for the most part the insurance covers 100% of the value of the trip if it needs to be cancelled prior to departure.   Covered reasons usually include; injury or death to travelers, travel companions, or family members, a primary residence made uninhabitable, the destination being made uninhabitable, requirement to attend a legal proceeding during the trip (e.g. jury duty), call to active miliary duty, a traveler or companion is laid off or required to move due to work.  Many policies will also cover if a traveler or companion is notified by their employer that they can no longer take vacation due to a business needs, though some policies only include this coverage if the insurance is purchased soon after the initial deposit for the trip (note: entrepreneurs and business owners may not be covered by the standard business needs coverage and may require special insurance riders).

In addition to trip cancellation coverage, these policies also typically provide “post-departure” coverage which applies once travelers have departed on their trip.  Post-departure coverage can include:

• Trip Interruption Coverage – reimbursement for the unused portion of the trip and the incremental costs to return home.
• Trip Delay – reimbursement for incremental costs incurred due to a trip delay.
• Missed Connection – reimbursement for incremental transportation costs due to a missed connection.*
• Loss of Baggage or Personal Effects – reimbursement for lost bags, or if personal items are lost or stolen while on the trip.
• Baggage Delay – reimbursement for the purchase of personal effects if bags are delayed.*
• Emergency Medical Expenses – reimbursement for emergency medical services received while traveling.  Most policies make this coverage primary coverage, which means you can get reimbursed from the travel insurance company and don’t need to involve your U.S. medical insurance provider.  This can be important coverage since many U.S. medical insurance plans do not cover services received outside of the U.S. (Medicare is a good example, it typically won’t cover any medical services received outside of the U.S.).
• Emergency Evacuation & Repatriation of Remains – coverage to transport the covered traveler in the event it is medically necessary.  Coverage usually only applies when the attending physician certifies that the severity of the injuries requires transportation, and that adequate medical treatment is not available locally.  Transportation is usually provided to the nearest medical facility that can provide the appropriate treatment, not to the covered traveler’s home city.  However, even transportation to the closest medical facility can be an expensive proposition costing hundreds of thousands of dollars.  Most policies provide coverage of $500,000-$600,000 for required medical transportation.  In the event of death, the policy will cover repatriation of the remains of the traveler.

* To provide a real life example of how trip insurance work, take my family’s trip to Spain in 2022.  We were scheduled to fly from Chicago to Barcelona, with a 3hr layover in Miami.  However, Miami was hit with strong storms and our Chicago to Miami flight was delayed 4hrs.  We missed our connecting flight to Barcelona and the first flight our airlines could offer to get to Barcelona involved us arriving 36hrs late and included a layover in the Dominican Republic.  Obviously not wanting to take that option, we discovered there was still a flight out of Miami to Madrid that day.  We took the Madrid flight, and then a high-speed train from Madrid to Barcelona.  Of course, our checked luggage did not get transferred to the Madrid flight, and we were not reunited with our bags until 3 days later.  I had purchased insurance for that trip and submitted a claim for the train tickets (~$900 for the 5 of us) and for clothes and other personal items we needed to buy while waiting for our checked luggage (another ~$500).  The insurance had only cost around $250 for the trip, so it was a great investment and made me a firm believer that insurance can be beneficial for travelers. 

Cancel for Any Reason (CFAR) Insurance
Cancel for Any Reason insurance is similar to standard travel insurance, except it also adds coverage for the traveler(s) to cancel for any reason (a non-covered reason).   For a covered reason, these policies cover 100% of the trip cost.  If travelers cancel for a non-covered reason, they typically reimburse 50- 75% of the trip cost.  There are more stringent requirements for CFAR policies, usually they must be purchased within 15-21 days of the first trip deposit and cancellation must be made at least 48hrs prior to the scheduled departure date.  CFAR typically costs about 50-75% more than a standard travel insurance policy.

Adventure Sports
This is an additional rider which can be added to a standard or CFAR policy to cover more extreme activities while traveling that are not covered by a base policy.  Examples include: professional athletic events, motor sports or motor racing, caving, spelunking, free climbing or mountain climbing that requires the use of equipment, free diving or scuba diving at a depth greater than 60 feet or without a dive master, skydiving, BASE jumping, bungee jumping, zip lining, hang gliding, parachuting.

Post-Departure Insurance
This is a variation of standard travel insurance, where you only insure a small portion of your total trip costs.  For one of the insurance companies I recommend to my clients, you only need to insure $250/pp of trip cost.  In the event a traveler needed to cancel your trip for a covered reason, they’d only get reimbursed $250/pp.  But that’s not why someone would get this coverage.  They’d get this coverage to get all of the post-departure coverage, including missed connection coverage, lost baggage, delayed baggage, emergency medical expenses coverage and emergency evacuation & repatriation of remains coverage.  Since the pre-departure cancellation coverage is small, the premiums for these policies are significantly lower than for standard trip insurance.

Medical Evacuation Insurance
This insurance provides medical evacuation back to the traveler’s home city in the event of hospitalization, regardless of medical necessity.  This means even if your travel destination has medical facilities able to provide the needed medical services, you can choose to be transported back to your home city to be cared for by your doctors at your preferred medical network.

These policies can either be purchased on a single trip basis, or as an annual subscription that covers travelers for a full year and any trips they take within the covered period.

Typically, these policies will cover transportation for any hospitalization that occurs more than 150 miles from your primary home.  This means these policies aren’t just for internation travel.  As an example (note: I have an annual policy I renew each year), I have a 2^nd home in Wisconsin that’s 180 miles from my primary home in Chicago.  If I, or any of my immediate family, were hospitalized while there, the policy would cover medical transportation back to Chicago and the Northwestern Hospital medical system.  I have many clients with 2^nd homes who purchase annual policies since they cover any trips to their 2^nd homes in addition to their leisure and business travel.

What to consider when evaluate if travel insurance is right for a trip

There are several things to consider, as not all trips benefit from travel insurance, while others will practically require it.

• Overall Cost of the Trip – expensive trips, such as those on travelers’ bucket lists, definitely need consideration of travel insurance.  Having to cancel an expensive trip creates a large financial impact for the affected travelers.  Travel insurance can help protect against this negative financial impact.
• Trip Cost Relative to Average Vacations – regardless of the absolute trip cost, when taking a trip that’s more costly than your average trip, you should also consider travel insurance.  Think of this as shifting the statistics in your favor.  You may choose to self-insure trips of average cost or below average cost, while insuring those of higher-than-average cost, so you’re hedging against the higher impact trips if you need to cancel.
• Risk of Disruption of Your Vacation – Sometimes you know there’s a low probability of a potential disruption to your trip, and sometimes there might be a heightened risk.  Maybe you have a family member whose health has recently started to decline, or maybe you know your work life could become hectic right around the time of your trip.  In these cases, travel insurance can be beneficial.
• Cost of the Policy as a % of Cost of the Trip – travel insurance can cost anywhere from 3-13% of the total cost of the trip.  There are many factors which impact the cost, including age of travelers, destination, type of trip, etc.  There are a few travel insurance providers which I recommend to my clients that cover kids for free under a traveling adult.  That means when parents travel without their kids, trip insurance as a % of the trip cost might be closer to high single digits, but when they travel as a family it might be low single digits.  When trip insurance only costs 3-4% of the total trip cost, that’s a small price to pay for the piece of mind insurance provides and makes it a great investment in the event of a claim.
• Cancellation Policy for Travel Suppliers – the cancellation policy for the travel suppliers can greatly influence the value of travel insurance.  For a hotel stay with a 1-day prior to arrival cancellation policy and a 1-night penalty, travel insurance probably doesn’t make sense.  But for a customized itinerary that requires a 30-40% deposit at booking and may require full payment 45-60 days prior to travel, travel insurance can make a lot of sense.  The deposit might be due 6-12 months in advance of travel (depending on how far in advance the travelers like to plan) and a lot can happen even in the 45-60 days leading up to travel to disrupt the travel plans. 
• Where You are Traveling – a few things to consider here.  The first is how remote your travel destination is and what medical care is available.  While you may feel comfortable getting medical care in Western European countries, if you are at the tip of South America on a cruise ship about to depart for Antarctica and become injured, you may want to have coverage to get you to Santiago or Buenos Aires and to cover your medical expenses there.  The second is whether it’s required because of your destination.  Many of the cruise lines I recommend to clients wanting to visit the Galapagos Islands require guests to have at a minimum good post-departure insurance with emergency medical and medical evaluation coverage.
• Personal Medical Insurance Coverage – Many U.S. medical insurance policies don’t cover expenses for emergency medical services received outside the U.S.  And if they do, it’s usually at a lower coverage rate than out-of-network coverage in the U.S.  That can leave travelers with large medical bills to pay.  In addition, many health systems in other countries know it’s challenging to get U.S. insurers to pay quickly even if they provide coverage, so these systems will make the traveler pay upfront and wait to get reimbursed when (if) their insurance provider finally pays for some of the medical expenses.  Since the medical coverage provided by travel insurance is primary insurance, and in many cases, the medical systems in other countries know these insurers will pay quickly, showing the intake worker your travel insurance policy many times avoids the need to provide payment in advance of receiving needed medical services. 

What trip components to cover with insurance

When considering travel insurance, you should cover all non-refundable components of the trip.

Tours & Activities
Tours & activities, especially when part of a custom itinerary, usually require a meaningful non-refundable deposit and final payment well in advance of travel, therefore these should be included in the coverage.

Cruises
Cancellation penalties for cruises generally start at 120-150 days from embarkation.  As the embarkation date nears, the penalty increases until reaching 100% between 30-60 days from embarkation.  Because the penalties start many months before the embarkation date, travel insurance can be a good investment for cruises.

Accommodations
Covering accommodations should depend on the cancellation terms.  If booking directly with a property that has a short cancellation penalty window, you probably don’t need to include.  However, you also need to factor in the length of your stay with the property and the total cost, as you may want the trip interruption coverage that comes with a travel insurance policy (e.g. if you need to return home partway through your stay at which point you may be on the hook for the total cost of your stay).

When accommodations are included in a custom itinerary and are subject to the cancellation terms for that itinerary, you will want to include in the coverage.

Airfare
The decision to include or not include depends on your ability to use a flight voucher/credit.  Most airlines will give travelers a credit to use in the future if they need to cancel a flight reservation (and usually without a change fee).  However, most airlines require that credit to be used within a specified time (usually within 1 year of being issued).  If you are flying on your preferred airline and know you could use the credit on a future flight, you don’t need to cover with insurance.  However, if you are booking on an airline which you are unlikely to fly on within the next year (e.g. a regional airline in Europe), you may want to include your flight costs in your trip insurance coverage.

Where to get travel insurance

There are a few options for where to get travel insurance.

Travel Suppliers
These days most big travel suppliers will offer travel insurance, including tour operators (e.g. Abercrombie & Kent), cruise lines, and airlines.  However, the policy terms should be carefully reviewed to understand the insurance coverage offered by these travel suppliers.  Sometimes the policies don’t provide a cash reimbursement for non-refundable payments, instead they provide a future credit to use with the travel supplier.  This is common with some of the policies offered by cruise lines, the policy premiums look very attractive, but only because the cruise line will only provide a future cruise credit (FCC) with the line for any reimbursed cancellation penalties.

3^rd Party Insurance Companies
These are insurance companies that specialize in travel insurance and aren’t associated with any travel suppliers.  Many have streamlined processes for purchasing a policy directly through their websites with only a few trip details required from the travelers.  They also likely have a streamlined process for submitting claims through their website, enabling travelers to track the review process and get quickly notified if any additional documentation is required for their claim.

Licensed Insurance Broker
Some insurance brokers specialize in travel insurance and can recommend policies from multiple companies based on the needs of the travelers.  A good broker can be very helpful when travelers need more than standard travel insurance or have unique needs (e.g. business owners wishing to cover business reasons interfering with their trip).  My back-office partner Brownell has an insurance desk with a license broker, and I typically refer my clients to the insurance desk when they need assistance with complex coverage needs.

When to Purchase

When to purchase depends on what coverage you want.  For standard travel insurance, most providers require travelers to purchase a policy within 14-21 days of the first trip payment, if they want to retain coverage for supplier default, pre-existing medical conditions, and cancellations due to work reasons.  Cancel for any reason (CFAR) insurance, Adventure Sports coverage, and incremental medical expenses & emergency evacuation above the base amount must also be procured soon after the initial trip payment.

If you aren’t concerned about supplier default, don’t have any pre-existing conditions, aren’t concerned your employer could require you to work during your planned vacation time, and if the initial deposit to the travel supplier is small, you may feel comfortable delaying the procurement of travel insurance.  For example, if you book a cruise with a well known and financial stable cruise line, which only has a $200/pp penalty until 120 days from embarkation (which is likely also when the final payment is due), you may feel comfortable waiting until just before the final payment is due to get insurance. 

How to shop for insurance

Get Recommendations for Insurance Providers
There are many providers of travel insurance, some are better than others.  Some are also better for different types of travelers, as each company has a different method for calculating the policy premiums.  Rates with some companies are determined by the travelers’ ages, which can make insurance significantly more expensive for older travelers with these companies.  Some providers will include one or more children under 18yrs old for free on a policy with a traveling adult.

If you haven’t purchased travel insurance before, it’s useful to ask family & friends who travel if they’ve used travel insurance before and if so, which company they used.  If you are working with a travel advisor, that advisor will be able to recommend one or more insurance providers that they think will be a good match for their clients and their particular insurance needs.

For more complicated insurance assistance, working with a broker (even if a small fee is required) can save a lot of time and ensure travelers get the right coverage.

Compare Insurance Offering
Although travel insurance policies from different providers can have a lot of similarities in coverage, there will be differences in the amount of coverage for the post-departure coverage, what activities are covered without the need of added policy riders, and what events are deemed “covered reasons” for a cancellation claim.  If looking at multiple options, it’s important to compare the components of coverage and also to fully read the policy coverage to understand what is and is not covered.