Is Travel Insurance Worth The Price?

I bought my first travel insurance policy in 1999 before heading to Southeast Asia for the Millennium. My husband and I and our son, then 2, would be staying at a luxury resort on a private island in Malaysia and the place had a strict policy on no-shows: if we canceled within five days of our scheduled arrival date (say our toddler came down with an ear infection so we couldn’t fly), we’d be on the line for the entire cost of our stay. They had our credit card number to guarantee it.

That prospect turned me into a serious shopper for trip cancellation and interruption insurance (one policy usually covers both), a product I had always dismissed as a rip-off. Like other value-oriented consumers, I had seen no need to add several hundred dollars’ worth of vacation insurance to the price of a vacation. Until that trip.

Since then we have insured a couple of other trips, but never needed to make a claim. The only time we came close was in the wake of 9/11. We had planned to visit northern India in December 2001, but canceled the vacation as the war in Afghanistan began. By that time we had given a substantial deposit to an Indian tour company that had made our hotel reservations. They refunded every dime. The insurance company, Travel Guard, was equally obliging. When we told them we weren’t going, they offered to give us back our premium, although the contract did not require it.

We don’t buy insurance for every trip–we didn’t for recent vacations in Spain and Italy, for example–but each time we do I have the same objection. Many of the offerings are comprehensive policies that include a lot of stuff I don’t want to pay for, like baggage delay, missed connections and identity theft resolution services (whatever that is).

More serious (and likely) scenarios, especially for baby boomers, involve aging parents left behind. Say you’re blissfully cruising through the Norwegian fjords, when you get an urgent message that a parent is suddenly seriously ill. In that case, you’ll need a policy that will reimburse you for non-refundables if you must forfeit the rest of your cruise, and pay your extra expenses to get home (assume you can’t take advantage of advance-purchase economy fares). Or let’s say a similar event could delay your departure and there’s a chance to hook up with the group later on. Be sure that too, would be covered. In some cases the insurance also picks up the difference in hotel costs if a traveling companion must cancel and you go on the trip alone.

Early in the trip planning process, make a list of your specific concerns, whether it’s evacuation from Tibet if you react badly to the altitude there, cutting your bike trip in the Loire Valley short if an ailing parent dies, or including coverage for a grandchild on your policy for a Galapagos cruise at no additional cost. (In case he comes down with an illness that prevents you from taking him.) It would be nice if whatever you buy also covered oddball occurrences, like the Iceland volcano eruption in May. But it’s much more important to address the risks that worry you most. Here are issues to consider as you shop around.

As an independent traveler, I’m rarely in the position of forfeiting a single large deposit if a trip is canceled. But since I often travel to destinations where I don’t trust the medical care, I like to have an exit plan if serious health issues arise. Evacuation insurance addresses this concern. Unfortunately, many policies bundle it with other insurance–for trip cancellation and interruption.

One exception is Travel Insured, which offers an extremely attractive and affordable “Atlas International ” plan that just covers health expenses overseas and medical evacuation. The price, according to an online calculator, depends on your age (coverage caps apply if you are 70 or older), the length of the journey, the amount of coverage and the deductible. For a one-month vacation, with $50,000 of coverage and a $100 deductible, the premium for me would be $101.

With any evacuation policy, who decides whether evacuation is necessary and where you are treated is crucial. Typically it’s the insurer–not your own doctor—who has the ultimate say. So if you develop a rare infection in the jungle of Borneo, the company might require you to be treated in Kuala Lumpur, rather than pay to have you flown back home.

Beware of “preexisting conditions”

Although many different contingencies could affect your travel plans, sickness or injury is by far the chief reason for canceling or interrupting a trip. Policies generally exclude coverage for “preexisting conditions,” but they differ in how they define the term. Depending on the underwriter, the exclusion can apply for between 60 and 180 days before you buy the insurance, whether or not you knew about the condition, and whether or not it was diagnosed.

Most insurers will waive the exclusion if you buy the insurance soon after you make the first payment for the trip (whether it’s a deposit or an installment on what you owe). But you’ll have to be well-organized and vigilant to meet their conditions –they vary from one company to the next. For example, CSA Travel Protection requires that you buy the policy before or within 24 hours of your final payment for the trip.

It’s important to get that exclusion waived. If you’re going to get into an argument with an insurance company, chances are it will be over preexisting medical conditions. Buying the insurance right away removes what would otherwise be the most likely area of contention.

What other exclusions apply?

Worried about the weather? The policies generally require a “complete cessation of travel services” before you can collect. Policy language on labor unrest tends to invite hair-splitting. Some plans require an organized strike, while others use the old standby “complete cessation of services.” If terrorism is covered, the provision is narrowly defined. Example: Travel Guard limits trip interruption or cancellation coverage to situations where “a politically motivated terrorist attack occurs within a 1-mile radius of the territorial city limits” of the city on your itinerary.

Also commonly excluded are claims from high-risk or elective activities: taking part in professional athletic events, operating an aircraft, or air travel that’s not on a regularly scheduled airline or air charter company. For certain pursuits, there may be a specialized policy. Among the offerings from Travelex are plans geared specifically to backpackers, people doing water sports, and travelers over 65; it’s an interesting marketing angle, but don’t count on it to cover activities that the typical policy excludes.

How do you calculate costs?

Premiums, based at least partly on the cost of the trip, are about $5 to $8 for each $100 of coverage. Insure for actual expenses–the full price of what you shelled out and can’t get back–not for potential costs (say if your trip is interrupted). The only thing that’s likely to cost you more is emergency evacuation, and most policies don’t restrict that amount to the value of the trip.

Factor in the age of the travelers and the time away (as some companies do), and insuring a $5,000 per person vacation could easily add $400 apiece to the tab. Cost varies only slightly from one carrier to the next, but major differences in policy terms can dramatically affect the quality of coverage they provide.

What’s the best way to buy?

You can buy a policy directly from the insurance company, through a travel agent, or through a tour operator. Given the high cost of cruises and upscale tours, many travel purveyors encourage clients to buy trip interruption and cancellation insurance. Often through an arrangement with an insurance company, they even sell the policies as an add-on to the tour package. That puts you at risk if the operator goes belly up. Travel insurance may cover such contingencies, but not if they’re caused by the outfit that sold you the policy.

On the other hand, buying through your tour company is convenient and offers some advantages. If there is a special activity on the tour that needs to be covered – like mountain climbing or scuba diving–they will have done the leg work to find a policy that covers it. And if you run into trouble with the claims process, they may be able to smooth the way.

If you’d rather buy your own policy, several websites make it easy to comparison shop: Squaremouth, InsureMyTrip and QuoteWright. Squaremouth even excerpts relevant policy provisions. These sites, as well as those hosted by the insurance companies, are designed so you can buy online.

Speedy and seductive as online shopping is, don’t buy a policy without seeing the certificate of coverage. (You can request it by calling the company’s 800 number or sending an e-mail to customer service.) CSA Travel Protection, which offers scanty information on its website, promotes the fact that they give you a 10-day “free look” at their policy, with the right to cancel and receive a full refund as long as you haven’t left for your trip. Trouble is, if you don’t like what you find, you probably will have passed the time to get the preexisting condition exception waived on another carrier’s policy.

What’s been your experience buying or submitting claims on travel insurance? Please let me know: djacobs@forbes.com.

Deborah L. Jacobs, a lawyer and journalist, is the author of Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide. You can follow her articles on Forbes by clicking the red plus sign or the blue Facebook “subscribe” button to the right of her picture above any post. She is also on Twitter and Google+