How Much Should You Insure?

This is really a two-part question:

1) How much do you HAVE to insure?

2) How much SHOULD you insure?

You've done your homework, you've picked your plan, and now it's time to figure out how much cancellation coverage to buy. Here's a segment of a typical trip cost/age/premium chart:

Trip Cost Age 0 - 30 Age 31 - 55 Age 56 - 70 Age 71 - 80
1001 - 1500 $58 $75 $101 $149
1501 - 2000 $78 $98 $137 $200
2001 - 2500 $98 $121 $169 $246

You're 65 years old and you've added up your trip costs (you're going on a cruise) and it comes to $2020 so your premium is going to be $169, right? Let's find out.

First, it's important to remember that the absolute most you want to insure are those costs that are pre-paid and non-refundable. The $2020 is the full cost that you've pre-paid so it passes the first part of that test. But if you do a little more checking you'll probably find out that perhaps $50 of that total is taxes that are fully refundable if you have to cancel the cruise. By only insuring the non-refundable total ($1970) you've just saved yourself $32 -- the difference between the $169 you were prepared to pay and the $137 premium that you should be paying.

Lesson: Be sure you know if any part of your pre-paid trip costs will be refunded to you in the case of a cancellation. This could also include costs such as pre-paid tours, pre-paid gratuities, and the like. If it's refundable don't insure it.

But let's assume that the $2020 figure is the correct total of your non-refundable trip costs. If you just insure $2000 you save $32 on the premium. Why in the world would you spend $32 to insure $20? Why not just insure $2000? Because often the insurers won't let you if you want some very important additional benefits. For example, this is from a Travel Guard plan showing what you need to do to get their waiver of the pre-existing medical condition

"Pre-Existing Medical Condition Exclusion Waiver
The Insurer will waive the pre-existing medical condition exclusion up to a maximum of the first $30,000 of Trip Cost per person if the following conditions are met:
1. This plan is purchased within 15 days of making the Initial Trip Payment;
2. The amount of coverage purchased equals all prepaid nonrefundable payments or deposits applicable to the Trip at the time of purchase, and the cost of any subsequent arrangement(s) added to the same Trip are insured within 15 days of the date of payment or deposit for any subsequent Trip arrangement(s);
3. All Insured's are medically able to travel when plan cost is paid."

With this plan (and many others), according to condition #2 if you need the pre-existing condition waiver you MUST insure that full $2020 trip cost. If you choose to only insure $2000 and later have to cancel due to a medical problem that's determined to be pre-existing, your claim will be denied. Of course if you feel you don't need the pre-existing medical condition waiver you're free to insure as little or as much of the trip cost as you want.

Other common benefits that are often dependent on you insuring 100% of your trip cost can be:

1) Coverage for a financial default or bankruptcy of a travel supplier
2) Eligibility for Cancel For Any Reason coverage (if offered)
3) Coverage for terrorism incidents
4) Avoid a possible reduction in the plan's trip interruption maximum benefit.

So if any of those additional benefits are important to you be sure to find out what's required as far as the trip cost to be insured before you try to save a few dollars by insuring less than 100%.

Some insurers don't care if you insure an amount less than the full trip cost and will still give you many of the additional benefits. For example, this is from a CSA plan describing the requirements for their waiver of the pre-existing medical condition exclusion:


The Pre-Existing Condition Exclusion is waived provided you meet all of the following requirements:

1. the payment for this plan is received prior to/or within 24 hours of your final payment for your Covered Trip; and

2. you are not disabled from travel at the time you make your plan payment; and

3. the booking for the Covered Trip must be the first and only booking for this travel period and destination."

Note that there's no requirement to insure your total trip cost. However, if you need their Cancel For Any Reason coverage you DO need to insure 100% of your trip cost so don't assume the requirement is the same for all plan benefits.

Special Situations:

You've bought an air ticket that's non-refundable but can be changed to a different flight if you have to cancel this upcoming trip. To get your pre-existing condition coverage you have to insure 100% of your trip cost. Do you have to insure the cost of the ticket?  Even though the ticket may be changeable it is still non-refundable and as shown in the Travel Guard example above, it's the non-refundable status that means this ticket would have to be insured.

What about hotels? If I give them 24 hours notice I won't be charged. It's doing to depend on the way you're paying for the room. If your credit card won't be charged until you check in then it's not a pre-paid trip arrangement and generally can't be insured. But if you have been charged one night's room rate at the time of booking and will forfeit that amount if you're a "no-show" then that charge is both pre-paid and non-refundable. If you have questions be sure to call your insurer.

I'm getting my air tickets through frequent flyer miles or other awards points. Do I need to insure them? The insurers do not cover the tickets themselves (they have no value) but usually you'll have paid some taxes and/or booking fees to book the tickets. These out-of-pocket non-refundable costs can be insured and, as in the Travel Guard example shown above, must be insured if you want the pre-existing condition waiver.

When in doubt, call the insurer. The pre-existing condition coverage or any of the other additional benefits can be too important to be lost because of a careless error or oversight. Don't guess at the amount you want/need to insure.

Don't Need Cancellation and Interruption Coverages?

Almost all of the insurers allow you to purchase their package plans at a $0 trip cost (without cancellation and interruption coverages) and still get all of the other plan coverages at a greatly reduced premium. Why would you do that? Perhaps you're flying overseas to visit relatives using frequent flyer miles for the air tickets and will be staying with the relatives so there's no accommodation cost. You might still want to be protected against losses if your flight is delayed, your bags are lost, or in a worst-case scenario you end up needing an emergency repatriation to bring you home in the event of a medical emergency.


travel insurance basics