Should You Buy Travel Insurance?

Should You Buy Travel Insurance?

If you’ve booked a vacation for your family lately, or sent your kid off on a school-sponsored field trip, you’ve probably considered trip-cancellation insurance. These offers generally promise to reimburse you for the vacation or field trip if you need to cancel. Are these plans worth the cost? It depends on your own personal risk calculation.

What does it cover?

Trip cancellation insurance comes in several flavors. Basic coverage reimburses you if you can’t make your trip because of certain reasons, such as if you get sick, a hurricane rakes the island you were going to visit, or terrorists attack your hotel. The insurance covers non-refundable expenses, so if the tour operator cancels your tour and they refund your fee, for example, the insurance does not pay.

The basic coverage also generally provides benefits if your trip is delayed or interrupted. It also pays for lost or delayed baggage, some medical benefits if you’re injured during your vacation, and emergency evacuation if something horrible happens during your vacay.

You can add to the basics. For example, for an extra fee you can add “cancel-for-any-reason” coverage, which reimburses you for at least part of the non-refundable portion of your trip if you cancel for any reason not covered by the usual terms. Other common upgrades are rental car insurance and accidental death insurance at higher amounts than the basic package offers.

Needless to say, read the terms carefully before you buy so you fully understand what is covered.

What does it cost?

How much does all of this cost? Prices vary, of course. In a comparison of four leading providers, basic coverage for a family of four on a $4, 000, week-long, domestic vacation ranged from $82 for a policy from Travel Insured to $275 for a policy form HTH Worldwide.

Those two plans differed mostly in the amount of coverage. For example, the HTH plan included $500, 000 in health coverage, while the Travel Insured plan offered $10, 000; and the HTH plan offered $1 million emergency medical evacuation coverage, while the Travel Insured plan provided $100, 000 coverage for that service.

In addition to the two firms mentioned above, popular trip cancellation insurance firms include American Express, Travelguard, and Access America. is a site that allows users to compare rates from about 20 providers.

Furthermore, many trip providers, such as school field trip organizers, offer their own policies. As do some credit cards — be sure to see if your card provides this coverage before spending money on a separate policy.

But do you need it?

This all sounds good, but you should evaluate this kind of insurance the same way you would evaluate any kind of insurance. Rather than thinking, “Wow, I’d love to get reimbursed for our vacation if my kid gets the flu the night before, ” think, “Hmmm, what are the odds my kid is going to get the flu the night before our vacation?”

Use the $4, 000 family vacation above as an example. Let’s say you’re considering a plan that costs $200 and will reimburse you for the full $4, 000 if someone in the family gets sick and you have to cancel. Forget about the rest of the coverage — emergency medical evacuation, health insurance, death benefits, etc. — for the moment and focus on the real reason you might get this insurance: to refund your purchase price.

If you buy this policy, you are essentially gambling $200 against a potential pay-out of $4, 000. What are the odds that you will “win” this gamble? You’ll win if one of you gets sick or a big storm hits the vacation site or whatever. So what are the odds of that? One way to calculate those odds for your family is to look at history: How many vacations have you had to cancel in the past few years? If you have taken ten vacations over the past five years, and cancelled one of them because of a covered reason, you could assume that the odds of you having to cancel your current, $4, 000 vacation are one in ten.

So think about it: If your neighborhood bookie put $4, 000 on your kitchen table and said you could have it if you drew the right card out of a stack of ten, would you pay him $200 for that one draw? Probably not, unless you’re really into taking risks.

But here’s another way to think about it: If you bought the insurance every time, you would come out even if you were able to collect on the insurance once for every 20 trips. Now it doesn’t sound that risky, especially if you travel a lot.

Obviously, many factors play into your personal risk calculation — maybe you are not traveling with any accident-prone children or maybe you know the tourist destination you are headed to frequently has hurricanes (hmm, maybe you want to rethink this vacation!). The point is, whatever the circumstances, make a rough guess of your odds of using the insurance before you plunk down the money.

Insurance companies do this with highly trained actuaries using sophisticated algorithms and databases full of historical information, but you can make an educated guess without any of that.

That way, whether you get the insurance or not, you will rest easy knowing that you made an informed decision.

6 Responses to “Should You Buy Travel Insurance?”

  1. Anonymous

    Travel insurance is a waste of time and borders fraud. Just as with most insurance and warranties, they spend most of their time finding ways to avoid claims rather than servicing claimants. I have drank the Koolaid but will NEVER again!

  2. Anonymous

    A friend of mine bought this insurance,was trapped in her caribbean hotel for days during a hurricane and insurance paid $0 because she actually arrived at her destination. If you ARE sick and cannot go on vacation, what documentation will the insurance co require to actually pay out???

  3. Anonymous

    I used to never get trip insurance, but now I often do (depending on location/time/money). Neither of my parents are in good health and I like to know that if something terrible should happen, I can cancel my trip if needed.

    Actually, I came very close to having to use it on a trip because I was the one who was sick. I was at the ER with terrible pain from a failing gallbladder just two days before a big trip to Disney World. My doctor said it was ok to go and gave me some good drugs (thankfully – I did need them).

  4. Anonymous

    If a bookie offered me 20-to-1 payout on a 10-to-1 odds game, I would take that bet every time. (Assuming I trusted the bookie in question, i.e. that the game isn’t rigged and that he’ll pay out if I win.)

    On the flip side – just because you’ve cancelled on trip in 10 doesn’t mean those are the odds of canceling. The sample size isn’t big enough. The only party in the transaction with a big enough sample size is the company offering the insurance!

    I have never bought trip insurance and would only do so if I knew something (about myself or the trip) that the insurance company didn’t.

  5. Anonymous

    I take 1-2 vacations per year and never purchased insurance and doubt I ever will. As you stated, I assess the risk of me losing the money I spent on my vacation. To me, the added cost of the insurance isn’t worth it.

    Also, my credit card offers me some insurance for my baggage, as long as I purchase the plane ticket with the card. Granted it’s not the same as the entire trip insurance, but it is still some coverage.

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