Is Travel Insurance Worth the Cost?

Every time you book a costly trip you’re faced with this question: Is travel insurance worth it? We help you answer this question. We also show you how you can get travel insurance for free.

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 promise to reimburse you for the vacation or field trip if you need to cancel.

So, are these plans worth the cost? Well, the answer to that really depends on your own personal risk calculation.

What does it cover?

Trip cancellation insurance comes in several flavors.  One of the best merchants to purchase travel insurance is Allianz.

Basic coverage reimburses you if you can’t make your trip because of certain reasons. The reasons may include getting sick, a hurricane raking the island you were going to visit, or terrorists attacking your hotel. The insurance only covers non-refundable expenses. So, for example, if the operator cancels your scheduled tour and refunds your fee, the insurance does not pay.

Basic coverage also (generally) provides benefits if your trip is delayed or interrupted. It often 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 stay.

You can add to the basics if you need more coverage. For example, for an extra fee, you can add “cancel-for-any-reason” coverage. This would reimburse 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. You can add these to plans that don’t include them, or upgrade to more coverage.

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

Related: More Tips for Saving Money on Vacation Travel

What does it cost?

We did a comparison of four leading providers. The quote covered a family of four on a $4,000, week-long, domestic vacation. The premiums ranged from $84 for a base policy from Travel Insured to $162 for a policy from HTH Worldwide. Each company had more comprehensive options available. But we just wanted to compare the basic offerings.

Those two plans differed mostly in the amount of coverage. For example, the HTH plan included $75,000 in health coverage, while the Travel Insured plan offered $100,000. The HTH plan offered $500,000 in emergency medical evacuation coverage, while the Travel Insured plan provided $1,000,000 coverage for that service.

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

Free Travel Insurance

Many trip providers, such as school field trip organizers, offer their own policies. Some credit cards offer some coverage when you book your trip — or parts of it — using your credit card.

For example, most American Express cards include between $100,000 and $250,000 in travel accident insurance for you and your travel companions. (Note that they don’t offer free trip cancellation or delay coverage, though you can add this for $9.95.)

You’ll also get cancellation/delay coverage, baggage insurance, and even rental car coverage with the Citi® Double Cash Card, in addition to a slew of other benefits. I personally carry this card, and its perks are exceptional.

You’ll also receive travel coverage with the Chase Sapphire (and Sapphire Preferred) cards, up to $5,000 in prepaid expenses. In addition to that, these Chase cards also include baggage delay coverage of up to $100/day for 5 days,. It kicks in if your bags are delayed by at least six hours, and you need to pay for toiletries and clothing.

These are just a few of the cards that offer some form of travel insurance. Be sure to check if your card provides this coverage before spending money on a separate policy. You might be pleasantly surprised.

Resource: Here is our list of some of the best airline rewards credit cards

But do you need it?

All these perks sound 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. It 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. Just focus on the most likely reason you might get this insurance: to refund your purchase price.

If you buy this policy, you are essentially gambling $200 against a potential payout 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 canceled 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 approximately one in ten. You can then compare the cost of the insurance with the odds.

Obviously, many factors play into your personal risk calculation. Maybe you are traveling with accident-prone children. 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.

Resource: The Best Travel Websites

Insurance companies do this with highly trained actuaries using sophisticated algorithms and databases full of historical information. However, 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.

7 Responses to “Is Travel Insurance Worth the Cost?”

  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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