To Buy Or Not


In almost all circumstances, the purchase of travel insurance -- especially cancellation insurance -- is optional. Which is the way it should be. You're an adult and should be treated as one. And travel insurance is a gamble. You're betting a smaller amount against the usually small chance that something will happen either before or during your trip that will result in a loss that can be recovered by making a claim against the insurance.

Individual travelers usually fall into three categories when it comes to the question of to buy insurance or not:

  • Those that NEVER buy insurance
  • Those that ALWAYS buy insurance
  • Those that make the decision to buy on a trip by trip basis.

For those that never buy the insurance the reasoning is usually either that travel insurance is terribly overpriced and/or that since they have never bought the coverage they're so far ahead of the game that the premiums that they didn't pay over the years would easily cover the cost of having to cancel this next trip.

Those that always buy the coverage do so either because they (or someone they know) have had a good experience in the past where the insurance proved invaluable. For them, the cost outweighs the risk.

These are all good, valid reasons on which to base your purchase decision as long as long as your circumstances don't change significantly over time and from trip to trip.

But most travelers will make their decision on the details and perceived risks of each trip and their own current circumstances. 30 years old and childless -- maybe they won't bother insuring that $6000 trip. 50 years old and a kid entering college in a year or two or with parents in their mid-80's and the decision might be different.

If you fall into that third group, prior to making a decision to buy or not, you have to balance your costs and your risks. Figuring out what the coverage would cost is the easier task. Go here for info on how much to insure and here for pricing. Then you can go to one of the online comparison sites for a range of premiums.

Figuring your risk of loss is more complicated. Some things you'll know -- say you're going on a $1500 cruise and driving to the port. That $1500 is probably the most you'll lose if you have to cancel the cruise prior to departure.

Perhaps the first stop on the cruise is Jamaica two days after departing. Before reaching that port you get a call that your Mother-in-law went into the hospital and you need to hurry home. What's your loss now? First of all, you're going to forfeit the value of five of the seven days of the cruise -- $1072. Plus, you're going to have to buy a last minute, one-way air ticket home. That's another $454. So in this case it's still at about that $1500 point. If you make it all the way to Grand Cayman or Cozumel before you depart it could be a few hundred more or less depending on the airfare situation.

Travel delays? Normally just a couple of hundred dollars. Baggage delay? Same thing. Baggage loss or damage? Probably covered by your homeowner's or renter's coverage anyway but with a deductible.

So the worst case scenario is that you'd lose about $2000 if this cruise blows up either before you depart or while on the ship. Can you afford that? For a 60 year old traveler a middle-of-the-road plan will run about $85 to insure a trip cost of $1500 (and $2250 for trip interruption)  -- about 5.5%. Is it worth the additional cost of $85 to insure your trip? We don't know. Only you can decide that.

Remember in our intro we said said we try to "never say never and never say always" with one exception and here it is: Anyone that travels outside the coverage of their medical situation is a fool.

Losing $1500 due to a trip cancellation or interruption would not be fun but it probably wouldn't ruin your retirement. But emergency medical treatment for something serious or an emergency medical evacuation or repatriation certainly can. See here for more info on this topic.

What's different about this type of risk is that there's no way or knowing the upper limit of your risk exposure beforehand. And that risk exposure, in many cases, has little or no direct relationship to your trip cost. A source at CSA volunteered the following a few years back:

Average cost of an emergency evacuation/repatriation arranged by their service provider:  $25,000.
Average cost of a medical claim:  $400

We all know averages are tricky. that evac average probably includes hundreds of $500 ambulance rides to the hospital from a resort averaged in with a couple at $250,000 involving transport via air ambulance from halfway around the world accompanied by doctors and nurses. Same with the medical average. Probably 98% of medical problems on a vacation fall into the bad sunburn, sprained ankle, couple of stitches, upset tummy range for minimal cost. Those are averaged in with the strokes, heart attacks, spines broken in a fall types of situations that will end up costing hundreds of thousands.

Those big expensive situations are rare. But they do happen. So you have to figure out what your risk is when deciding to buy a travel insurance policy or not.

Most of you reading this will have some sort of health insurance in place at home. And most of you have absolutely no idea if you are covered in any way during your trip. Whether or not you buy a travel insurance policy you need to know the answers to the following questions. We've included the answers that we got from our insurer (Anthem/Blue Cross HMO) just to show you some typical answers with a typical plan. DO NOT rely on these answers to apply to you. They may or may not and you need to contact your insurer yourself so you absolutely know where you stand.

1) Am I covered when outside the US or while on a cruise ship?

 In the case of an emergency, the coverage would apply with the same deductibles and co-payments as any other out-of-network services provided.

2) Will you pay the doctor or hospital directly?

No. You would have to pay the service provider and submit the documentation for reimbursement.

3) I know in some countries they demand up-front payment in order to be admitted to a hospital. Can you help if that's not possible?

No. We cannot advance any money to a service provider to either guarantee your admittance or to secure your release.

4) Will you pay for emergency transportation from where I'm at to the nearest hospital? What about by helicopter from a cruise ship?

Yes, ambulances are covered. A helicopter transport MAY be covered depending on the circumstances.

5) If I'm ready to be transported home but still need hospitalization when I get back is the cost of that transport covered?

No.

So you can see that in an emergency I'm basically on my own -- hopefully, most of the bills would be paid eventually with some fairly significant co-payments, deductibles, and probably delays. My total risk exposure? I don't exactly know but it will be big. Possibly retirement-ruining big.

Let's look at one plan and see what if any help it can provide and at what cost. We'll use the TravelSafe Classic plan.

First off, this is a "secondary coverage plan" (see here for more on what that means). In short, after I square up with Anthem/Blue Cross I'll have $100,000 to reimburse me for those deductibles and co-payments.

Here's how they would handle questions #2 and #3:


Advance payment will be made to a Hospital, up to the Maximum Benefit Amount, if needed, to secure Your admission to a Hospital, because of a covered Sickness or Injury. The Program Medical Advisor will coordinate advance payment to the Hospital.

 

As to question #4 there two advantages. Not only will they make all of the arrangements for an emergency evacuation buy they will also take care of pre-paying it -- no need to worry about paying for it yourself and getting reimbursed later.

 For question #5 the following applies:

Non-Emergency Medical Evacuation : If the local attending Legally Qualified Physician and the Program Medical Advisor determine that it is Medically Necessary for You to return to Your place of permanent residence because of an unforeseen Sickness or Injury which is acute or life-threatening, the Transportation Expense incurred will be paid for Your return to Your permanent residence or to a Hospital or medical facility closest to Your permanent place of residence capable of providing that treatment via one of the following methods of transportation, as approved, in writing, by the Program Medical Advisor:

i) one-way Economy Transportation;

ii) commercial air upgrade (to Business or First Class), based on Your condition as recommended by the local attending Legally Qualified Physician and verified in writing; or

iii) other covered land or air transportation including, but not limited to, commercial stretcher, medical escort, or the Usual and Customary Charges for air ambulance, provided such transportation has been pre-approved and arranged by the Program Medical Advisor.



So most of the gaps are filled in. What's it worth to you knowing that an event that can bankrupt you is very rare while traveling but that it does happen? With that TravelSafe plan the 60 year old traveler can buy it with just the minimum trip cancellation and interruption coverages but with everything else including those benefits described above for about $60. Other plans with similar coverage would run about $40 to $80.

Again, when you're figuring out whether or not to buy a travel insurance policy you have to take into account two factors. The risk you know (your trip cost and the most you'd have to pay if you need to cut the trip short) and the risk you don't know (the cost of a medical emergency). And remember that the medical emergency risk is the same whether you're spending $10,000 for the owner's suite on your cruise or $799 for the cheapest cabin available. It's generally independent of your actual trip cost


travel insurance basics