Holiday Insurance:
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Some people swear by it, other people swear about it. But there are many different types of travel insurance, some better than others.
In part one we review the different types and sellers of travel insurance policies; in part two we look at the different type of coverage and protection these policies offer you.
A Travel Agent Perspective
As a former seller of travel, I definitely loved holiday insurance – not so much for the commission I earned from selling it, but rather because of the way that it could transform a desperate and sometimes tragic problem into a resolved situation.
I remember one time being telephoned, in the middle of the night, from a small out of the way island off the Australian coast. The caller was a client, in tears due to learning about the sudden death of his mother. I was able to say to him ‘Don’t worry about a thing, Paul; simply go to the airport tomorrow morning and there will be tickets waiting for you to get you and the rest of your family home as quickly as possible’. The cost of urgently returning home, and the cancellation fees for the rest of their vacation, were all absorbed by the holiday insurance.
Another Travel Agent Perspective
As a travel wholesaler, we sold holiday insurance through travel agents. One time I had a travel agent call me - also in tears. It turned out that she had neglected to offer holiday insurance to a client, and now he was threatening to sue her and her agency if they didn't refund him the costs that would otherwise been covered by travel insurance. He said 'if you had offered it to me, I would have bought it, and because you didn't offer it to me, you should be liable'.
For this reason, travel agents should be sure to always offer their clients the option of holiday insurance.
Different Sources of Holiday Insurance
There are many different sources for holiday insurance policies, with different implications for their value and their coverage. Some sources are very much better value than other sources.
Wholesale or Retail Insurance
When you buy any sort of holiday insurance, the premium you pay gets allocated several different ways. Some of it goes as commission to the person selling it to you. Some of it goes to cover the administration costs of creating your insurance policy and recording it. Some of it goes as profit. And some of it goes to actually cover the risks you’re insuring against.
You want as much of the money you pay as possible to go towards actual coverage, and as little as possible to be allocated towards the other things. Let’s guess how a typical $50 premium gets spent – something between $5 and $15 is selling commission, another maybe $5 goes towards promotion and other selling costs, then perhaps $20 goes towards administration, maybe $5 for profit, and that leaves something between $5 and $15 for actual risk coverage – not a large percentage of your $50 payment, is it!
However, if you bought the policy as a 'wholesale' policy, the $20 administration cost reduces down to maybe $1 or less, which means that the $5-15 of actual risk/benefit coverage increases up to $25-35 – more than double the coverage, compared to a 'retail' policy. If at all possible, you want to be buying a wholesale rather than retail cover.
What is the difference? A retail policy is where you fill out a special insurance application form, and send off a payment to the insurance company, and get a certificate of insurance back from them.
A wholesale policy (which also is sold through travel agents) is where a tour operator or wholesaler groups together many insurance sales. You still get the chance of buying holiday insurance along with the rest of your travel arrangements, you pay the premium along with the rest of your travel costs to them, and simply get a pre-printed generic policy document and perhaps a voucher from the tour operator.
This way the insurance company has almost no administrative overhead – it simply gets a statement once a month from the wholesaler listing the people that they have sold insurance to and sending a check for the net premiums; all the insurance company has to do is bank the check (well, at least until you make a claim!).
'Real insurance' or Supplier's Self-insurance?
If you are buying insurance that ultimately comes from a holiday insurance underwriter, that is a 'real' insurance policy. But some tour operators and cruise lines will offer their own 'house' insurance policies. Often, all these policies protect you from is from that company's own cancellation fees if you cancel your travels. This type of insurance can be very limited in its coverage, and while it might be less expensive than a comprehensive policy, it is rarely a good value.
The most extreme form of this in-house insurance is seen when rental car companies try and sell you their insurance coverages at rates typically ten times or more higher than you would pay through a commercial insurance company.
Annual or Single Trip Policies
Most holiday insurance is offered as a single trip policy that covers you for your one particular upcoming trip. However it is possible to buy annual holiday insurance that provides cover to you – potentially for as much travel as you might do during the entire year.
This is another form of ‘buying in bulk’ and the value tends to be very much greater in an annual policy than in a single trip policy, although the biggest factor here is how much travel you’re likely to do in a year. If you’re only going to travel once or twice, single policies are better, but if you have a lot of travel lined up in the next twelve months, check out an annual policy as a possible alternative.
Primary or Secondary Cover
This is an important point of distinction. Primary cover means that the company offering it will ‘pay first’; secondary cover means that they will pay second (or last), only after you’ve claimed as much money as possible from any other insurance you already have.
The important difference is most clearly illustrated with car insurance. If you have a $5000 claim, you don’t want to have to use your regular, at-home, auto insurance because they might then increase their rates and you lose your ‘good driver’ history with them. If the holiday insurance policy has primary cover auto insurance, then you don’t need to do anything to mess up your regular auto insurance at all; but if it is secondary cover, the travel policy won’t do anything until after you’ve gone to your regular insurer and got as much as you can from them.
Needless to say, primary cover is better than secondary cover!
On a similar concept, some insurance companies will pay claims direct to whoever it is that seeks payment, others require you to pay yourself and then seek reimbursement. This is not necessarily always up to the insurance company – sometimes people will want to get money direct from you rather than trust on a faceless insurance company in another state or country to pay them, but where it is an option, you’d obviously prefer the insurance company to directly pay rather than to have to suffer the cash-flow consequences of making large payments yourself with reimbursement to follow who knows exactly when.
There are many different types of holiday insurance, and it is important to understand what sort you’re getting and what it does and does not cover. For example, some credit cards boast that they provide ‘free holiday insurance’ but when you work your way through the fine print, you find that all they offer is to pay some small sum of money to your estate if a plane that you’re on crashes and you’re killed!
The first part of this two part article talked about the different sellers of travel insurance, this part looks at the different types of holiday insurance that they sell.
Types of Coverage Offered
The ‘big two’ risks that are covered to some extent by most holiday insurance policies are the costs of changing or canceling your travels, and the cost of any medical care and emergency assistance while on your travels.
Many holiday insurance policies also include small amounts of other coverages - perhaps a few hundred dollars for baggage delay/damage/loss, loss of travel documents, and other small sums for flight delay or interruption. These are relatively trivial amounts of cover and trivial risks. Some also include some nice extras like paying the cost for someone to fly out to be with you if you are required to be hospitalized for more than two or three days.
One other potential major coverage can be supplier bankruptcy, but many times the company that sells the policy to you is unable to have the policy also cover their own personal bankruptcy. This can be a good reason to buy an independent policy, not one issued by the same company as is arranging your tour.
Most policies also include a large amount of air death insurance, but this is a very low value item – it only costs about 25c to buy $100,000 of cover ‘wholesale’ for air death insurance! I guess this is a reassuring reminder of how safe air travel is. :)
Some holiday insurance policies will offer to cover rental car CDW/LDW risks, for an extra cost per day of coverage. These rates (typically less than $10/day) are usually very much less than what you'd pay to the rental car company. If your regular car insurance policy doesn't include coverage for when you drive rental cars (most do!) and if you don't have some type of protection through a credit card, then this is a much better way to cover yourself than to buy the expensive cover from the rental car company.
Trip Cancellation/Change Coverage
You should try and understand what your possible costs might be if you end up needing to change or cancel your travel plans and then decide if you actually need to insure against that risk, and, if you do, how much coverage you should have.
For example, if you’re flying on an unrestricted first class fare, you might not need any cancellation/change coverage at all because your ticket can be changed at any time, for free, and, if cancelled, you’d get a full refund.
It seems a contradiction, but often the cheapest least expensive fares have the most ‘risk’ associated in terms of change and cancellation fees, and it can cost more to change a discounted fare and return home on a different flight than the ticket cost in the first place!
Some holiday insurance policies say that they’ll pay ‘up to your total trip cost’ in change and cancellation fees. You might think that this is a full 100% cover with no remaining risk, but that isn’t necessarily the case! For example, if you are on a restricted airfare that cost $600, and have a total package that cost $900 per person, then if you need to come home due to a family emergency, you might find that the cheapest urgent return air ticket costs more than the entire package cost to start with – maybe you’ll have to pay $1000 for the no advance purchase one way return ticket!
Some holiday insurance policies will pay for change and cancellation fees ‘for any reason’ and actually mean it, others have various restrictions in terms of what circumstances would justify, in their mind, your canceling/changing your trip.
The more restricted policies typically exclude any circumstances 'under your own control', and perhaps unreasonably deem work related issues to be circumstances under your own control - if your boss says to you, the day before you leave - 'sorry, but we've got a crisis on at present and need you to defer your vacation' then the travel insurance policy will probably not pay you a penny to refund your cancellation or change fees!
Medical Care and Emergency Assistance
As regards medical care and emergency assistance, some people think that their personal, at home, medical insurance covers them everywhere in the world, and then get a nasty shock when either they find it doesn’t cover them, or that the deductibles are much higher, or perhaps their medical care is covered, but not related costs such as transportation.
Some people also don't realize that, although most cruise ships have onboard doctors, their services are not free but are offered in exchange for fees, same as any other doctor, anywhere else.
If you have to be flown back home on a stretcher, that can require the airline to take out a block of nine coach seats to make space for the stretcher, and that is a very expensive exercise indeed that you’d definitely not want to have to pay for personally. ‘Emergency assistance’ usually covers these types of situations, and other situations such as, if you’re out in a remote area and break a leg, or on a live aboard dive-boat off the coast, it should cover the cost of sending a helicopter to rescue you.
You’d probably want to have at least $10,000 worth of medical cover and emergency assistance on any travel insurance policy you bought.
Pre-existing Conditions
Usually the biggest ‘gotcha’ with these holiday insurance policies is a waiver which denies coverage if the loss was related in part to a pre-existing medical condition. This means if you already have some type of medical problem, if something reasonably related to that medical problem causes you to have to cancel your travel plans, change them, or to experience an illness during your trip, the insurer can decline to make any payment to you due to it being related to the pre-existing condition.
However, some insurers now agree to not worry about this if your condition is stable and you buy the insurance as soon as you book your travel (ie pay a deposit, typically). This means that it is important you consider travel insurance at the very start of your travel planning process, not as an afterthought at the end, when it might then have become too late to get a policy that doesn’t exclude pre-existing conditions.
Terrorism Coverage
A lot of people had problems, when canceling or changing their plans after 9/11, due to finding that their insurance policy did not cover them for terrorist acts. A few policies - notably some issued by Travel Guard - provided coverage, but most other policies did not.
And, since that time, coverages have changed - be sure to check your policy for what is and is not now covered.
How to Comparison Shop for the Best Insurance
As mentioned last week, insurance premiums can vary tremendously as a result of their administrative and sales costs more than as a result of the underlying ‘value’ of the coverages they offer. However, the claim history (ie the true 'cost' of the insurance' does also influence the rates set. To add to this confusion, some types of coverage are very much more expensive to provide than others.
The best thing to do is to work out exactly what you must have in the way of coverages, and then compare policies against these requirements. If a policy offers more coverage than you really need, good, but don’t pay extra for additional coverage you don’t need. If a policy is less expensive but doesn’t have the coverages that you do indeed really need, don’t consider it – being half insured is false economy – either buy full travel insurance or none at all.
Perhaps the best aid to comparing different policies is (of course!) on the Internet. The website www.InsureMyTrip.com offers comparisons between 25 different policies offered by 10 different insurance companies, and you can match this information alongside any additional insurance policies offered by your travel agent or tour operator and make the best decision accordingly.
Other Issues
If you have any questions about whether something would be covered or not covered by a travel insurance policy, don’t try and figure out the fine print of the policy (And don’t ask your travel agent, either. They are a travel agent, not an insurance agent!) . Simply telephone the insurance company at their toll-free number and ask them. That way you get the most accurate answer possible, and if your advice was wrong, you have a better chance of then embarrassing the insurance company into honoring what their own employee told you than if you’d just assumed something yourself or if a travel agent had made an error in interpretation.
When is payment due, and when does coverage start – at the time of payment, hopefully. When does coverage finish? What happens if your trip is delayed or extended by a day or two?
Make sure you understand how to file a claim. Most policies require you to notify the insurance company as soon as possible, and before you start incurring costs that you'll be seeking subsequent reimbursement on.
Most states have an Insurance Commissioner or in some other way regulate the sale of insurance, and so if you end up feeling unfairly treated, you have the ability to complain to these state officials and they might be able to help you resolve the dispute.
Having said that, in fairness to the insurance industry, in my ten years of selling insurance policies to travelers, I never once saw a genuine case where the insurance company we worked with (Travelguard) was being unfair or uncooperative; indeed I was consistently delighted with their speedy response, and whenever we had a complaint, it inevitably turned out that the reason for the delay was because the complaining client (or their doctor!) had yet to fill in the claim form correctly.
Summary
So - is travel insurance for you? Here's an easy way to answer that question. Look at what the 'worst case' scenario could be - total cancellation of your entire plans, with full cancellation penalties and no refunds, or a sudden accident requiring costly medevac and local care, or something else horrible like that. If you can afford to 'self-insure' and don't mind potentially having to cover these costs yourself, then you don't need travel insurance.
But if the thought of suddenly having your travel plans destroyed by some unfortunate circumstance, and then having to absorb the thousands of dollars of associated cost, is both unwelcome and inconvenient, maybe the cost of a travel insurance policy (usually under $100) is valuable peace of mind.
To close this subject, may I wish most sincerely that you never get good value from your travel insurance! I hope you buy it as appropriate, but never use it - it is one of those things that you definitely hope you never have to use, and which you should never complain about not having made any claims on!
If you wish to take out holiday insurance then you may find one these holiday insurance companies useful:-
Essential Travel Holiday Insurance with Columbus. Goto Holiday Insurance.
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