Understanding Travel Insurance for Summer 2017

Travel insurance, like all insurance, should only be purchased to cover significant financial risks. For most people, it is expensive to purchase travel insurance and might not be worth it compared to the benefits it provides. Travel insurance is specialty coverage and many insurance companies charge a high price for it because they assume people who purchase it will use it, and most people who won't use it don't purchase it in the first place.

On the other hand, travel insurance can be beneficial for some travelers, like frequent travelers, the elderly or illness-prone travelers. For instance, medical care while traveling can be expensive, so it would make sense for someone who is more likely to need medical care while traveling to have this insurance.

For those who purchase travel insurance, it is very important to read the terms and conditions carefully before purchasing because travel insurance often has significant limitations and restrictions on what claims it will pay. This can lead to misunderstandings about the travel insurance, and can leave travelers without the coverage they thought was being advertised.

Here are the few main types of travel insurance, along with tips to select the right kind and how to file a successful insurance claim.

Travel Medical Insurance

Travel medical (health) insurance will have deductibles (the amount the insured must pay for out of pocket before insurance coverage kicks in) and may have copayments similar to regular health insurance. Before purchasing travel medical insurance, it is important to understand what current health insurance policies cover when overseas. This is because travel medical insurance will require primary health insurance to pay first, before paying anything. A travel medical insurance policy is considered supplemental or secondary coverage. The best way to understand what current health insurance coverage will pay for if sick or injured overseas is to call the health insurance provider directly before traveling. 

Pre-Existing Conditions

As insurance is designed to protect against unexpected events that may happen in the future, those with pre-existing medical conditions need to read the fine print when purchasing travel insurance. Travel medical insurance will have significant limits or might not cover expenses relating to \ pre-existing conditions when overseas. Additionally, there could be limits on coverage for older travelers (i.e., those over age 65) as they are more likely to become sick or injured while traveling overseas.  The bottom line is to be careful to understand exactly what is and is not covered under the travel medical policy prior to purchasing.

Filing Claims

Before leaving, make sure to understand how to file a claim and bring all contact information for the travel insurance company, as well as the primary health insurer, on the trip. Knowing this information in advance is critical as it may not be possible to access the internet from some overseas locations. Like all insurance, following the requirements for filing a claim (getting the appropriate documentation from the doctors and hospital, notifying the correct people at the insurance company, and coordinating with the U.S. health insurer) is critical to getting paid. Important requirements might be missed during the stressful time of obtaining medical care in an unfamiliar location, which is why this advanced preparation is so important.

Travel Cancellation Insurance

It is important to understand what travel cancellation insurance will and will not cover prior to purchasing. This type of insurance does not come with the stress of being overseas, as the trip will not have started, but the coverage is expensive and probably not needed unless there is a reasonable likelihood of needing to cancel the trip and the trip has a large cancellation charge. Remember there are likely significant limitations on what will trigger any payments, and documentation confirming the reason for the cancellation will be needed.

Travel Life Insurance

Travel life insurance is best avoided as it's very expensive and will not provide as much coverage as a "regular" life insurance policy. This is because in a purchasing regular life insurance policy, the insurance company will ask medical questions and determine the health of the person applying. This is called underwriting. Lower prices are charged by insurance companies when they can underwrite the policy, since they have more information on the level of risk. Travel life insurance is not underwritten, so it will be much more expensive and will have significant limits on benefits paid from conditions that are already known when the insurance is purchased.

Travel and Baggage

Not getting one's luggage at the final destination is a huge hassle but not likely a large financial loss, so the purchase of additional baggage insurance is generally not necessary. Plus, there are other ways to collect if your luggage does not arrive when you do. For example, general travel insurance often will provide a small amount to help pay for essential personal items until bags are found and will pay more if the luggage is never recovered. If a credit card is used to purchase the airline ticket, the traveler might also have coverage from both the credit card company and from the airline itself, although airlines have strict limits on the amount they will reimburse for lost or damaged luggage. It is best to leave valuables at home when traveling as almost all travel insurance policies will have limits on the amount that can be recovered and will not cover expensive jewelry or similar items lost in one's luggage.

When considering purchasing travel insurance, make sure the benefit of having that insurance outweighs the cost. And regardless of which type you choose, make sure to read the terms and conditions carefully ahead of time, so you know exactly what you're getting.

 

Todd Erkis is an FSA, CERA, MAAA, and professor of finance and risk management at Saint Joseph's University in Philadelphia. Prior to becoming a professor, he spent more than 25 years as an actuary, developing insurance products and helping set prices for insurance. His book, What Insurance Companies Don't Want You to Know: An Insider Shows You How to Win at Insurance, provides a guide to everything you need to know about insurance and is now available on Amazon.

 

Brittany Lorenz

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