In this recent article about travel insurance and bankrupt airlines, I discussed several key elements to consider when purchasing a plan. I have a bonus tip to add, and I think it deserves a stand-alone post.

Why you should never buy travel insurance from an airline, cruise line, or tour operator

When you decide to purchase insurance for your trip, you are entering into a contract with an insurance company. You are promising to pay a certain amount of premium, and they are promising to pay you under certain circumstances (a claim).

In the case of travel insurance, you should always purchase from a third party. Even though your cruise line, airline, or tour operator offers you insurance, it is not the same as purchasing it independently.

Insurance purchased from a travel supplier may not cover financial default (bankruptcy)

There has been a string of airline bankruptcies recently, causing many travelers to shop for travel insurance. For travelers who purchased a plan through their travel supplier, however, there might not be coverage for this situation. Many insurance plans offered by travel suppliers do not cover bankruptcy and financial default.

Always purchase travel insurance from a third party source

It is always wise to purchase travel insurance from a third party source who will provide coverage in the event of bankruptcy, when airlines or other travel suppliers stop service. Don’t be left without coverage when you need it.

Related Links
How do I know my travel insurance company is reputable?
3 Steps to finding the right travel insurance
Who has the best coverage for lost luggage?

With the rapid increase of airline bankruptcies and cancelled flights, many travelers are relying on travel insurance to protect their investment. Travel insurance provides many benefits, one of which is coverage for the bankruptcy or financial default of a travel provider; including airlines, cruise line, or tour operators.

This travel insurance coverage will provide reimbursement for cancelled travel plans when a travel supplier declares bankruptcy.

Not all travel insurance policies provide this coverage, it depends on the plan. Some provide great coverage for this, some have several conditions that must be met, and other do not provide coverage at all.

Here are 4 essential steps to buying financial default coverage

1. Check your policy to make sure financial default coverage is provided
There are many different travel insurance companies, and each company has several products. Financial default (or bankruptcy) is not covered by all travel insurance policies. Read the policy brochure carefully, or even better the actual policy certificate. Look for a section regarding coverage for bankruptcy or financial default.

The best way to find the policies with the best coverage for financial default is to use a comparison engine. At the end of this article, you will find a table outlining the financial default coverage for all major travel insurance companies and their products.

2. Check the list of “Covered Suppliers” to make sure your airline or tour operator is covered.
Some travel suppliers might not be covered for financial default reasons. Travel insurance companies will define the specific travel suppliers that they will cover for financial default. Look for a “Covered Supplier List” when purchasing travel insurance, and check it to make sure your airline, cruise line, or tour operator is listed.

The travel insurance company must define the specific companies due to the shear number of different providers, and the questionable stability of some of them. It isn’t hard to start a “tour company”, and many of them go out of business.

3. Buy travel insurance as soon as possible
Regardless of the financial default coverage, it is always recommended that you purchase your travel insurance policy as soon as possible to take advantage of all the coverage. This means buying it when you make you first trip payment. There are many reasons to purchase your travel insurance plan as early as possible, and it is specifically important with financial default and bankruptcy coverage.

Most companies require that you purchase the policy within a certain time period; often within 10-15 days of your first trip payment, or within 24 hours of you last trip payment. Check the details of your policy, or consult the table at the end of this article.

The travel insurance company does this to make sure travelers don’t buy coverage after they know about the bankruptcy.

4. Be aware of the “waiting period” for financial default coverage in many travel insurance plans.
Another line of fine print refers to the “waiting period”. This is a period of time after the purchase of your policy when a financial default would not be covered. For example: if a company has a 10 day waiting period, but the travel provider declares bankruptcy 6 days after the effective date of the policy, you would not be covered.

Again, this is done to prevent uninsured travelers from buying coverage after the fact. Oftentimes, the imminent bankruptcy of a company is known to the general public. Without this waiting period, you might hear that your provider is about to declare bankruptcy, and you could buy the insurance hoping to be covered. The purpose of trip cancellation insurance is to cover sudden, accidental, and unknown events. This is why insurance should be purchased as soon as possible, so you can be covered for the longest period of time.

Financial Default Coverage Matrix

Here is a listing of most major travel insurance companies and their individual plans, as well as the financial default coverage provided. Note: It is also important to double check your policy when purchasing; simply use this table as a starting point (see How to Compare Quotes with a Travel Insurance Comparison Site)