Part 2. What is trip cancellation coverage, and do I need it?

(This is one part of our Travel Insurance 101: The Complete Guide to Travel Insurance. For other parts, check the following links)

1. Introduction- General definitions, FAQ’s, Traveler Profiles
2. Trip Cancellation Coverage- What is it? Do I need it?
3. Travel Medical/Evacuation Coverage- What is it? Do I need it?
4. Additional Trip Insurance Coverages- What else does travel insurance cover?
5. Buying Travel Insurance- Where and how do I buy travel insurance?

 

This section will cover:

• What is trip cancellation insurance?
• What does trip cancellation cover?
• Do I need trip cancellation coverage?
• Examples of when you should (and shouldn’t) get trip cancellation coverage

 

Definition: Trip cancellation coverage provides reimbursement for lost travel expenses if you need to cancel your trip.

Example: You or a traveling companion becomes ill right before your cruise. You need to cancel, but you will lose the $8,000 you already spent for the trip.

Trip cancellation coverage is one of the most important aspects to consider when shopping for travel insurance. In fact, it is a primary reason for many travelers to purchase insurance. When travelers think of travel insurance, they usually think “cancelled trips”.

What does trip cancellation cover?

Trip cancellation insurance protects you against losing money when an unexpected event causes you to cancel your trip. Each company, and each policy, will have a slightly different set of “covered reasons” for trip cancellation. Here are the most common.

 

Common “covered reasons” for trip cancellation:

• You, a traveling companion, an immediate family member, or even a business partner becomes sick or injured and you are required to cancel your trip. This is a very common reason for trip cancellation. The trip departure date is approaching, and you or your travel companion become ill and cannot travel. It is too late to cancel or make changes, so any non-refundable pre-paid expenses are lost.
• The death of you, a traveling companion, or immediate family member
• Inclement weather causes the delay or cancellation of a trip. This is another popular reason for cancellation. Just make sure you buy your plan early; once a hurricane becomes official (i.e. a named storm), you cannot buy insurance.
• A strike causing the complete cessation of travel services. It must be, like all of these reasons, unforeseeable.
• Your home, or destination, is made uninhabitable by fire, flood, natural disaster, vandalism, or burglary. If you suffer the unfortunate situation of having your home damaged, and you need to handle the various aspects of it, you won’t lose your trip costs.
• You or your traveling companion are called to jury duty. Plans made far in advance can be ruined by jury duty. If you or your traveling companion are called and you cannot reschedule, the trip could be canceled.
• A terrorist incident occurs in a city listed on your itinerary. In the current world climate, terrorism is a realistic concern. Many plans will cover a cancellation if an incident occurs in a city on your travel itinerary.
• You or a traveling companion are called into active military service- This provides coverage if your leave of absence is revoked, or you are reassigned. A perfect coverage for military members.
• A termination or layoff that affects you or a traveling companion. In our current economic climate, unforeseen layoffs are an unfortunate reality. You can protect your vacation investment against a termination or layoff with trip cancellation insurance.
• You or a traveling companion are the victim of a felonious assault. There is usually a time frame for this coverage; for instance within 10 days of you scheduled departure date. But, if you are the victim if such a crime it would help to not concern yourself with lost vacation expenses.
• Being involved in or delayed by a traffic accident on the way to your departure. This is a very common part of any auto travel; the traffic accident. If it happens to you while heading to the airport, trip cancellation might cover it.
• The theft of travel documents such as a passport or visa. This is very nice coverage to have in your policy, but the theft must be documented (by police) to qualify.
• The insured’s family or friends living abroad with whom the insured was planning to stay are unable to provide accommodation due to a life threatening illness, injury, or death. A very specialized coverage, but it happens.

 

Some policies include additional, and more specialized, covered reasons:

• You become pregnant or need to attend the birth of an immediate family member’s child.
• Financial default of a tour operator, cruise line, airline, or other travel supplier. This coverage can vary depending on the plan and when you purchase the plan, but can provide great coverage in case a company you’re traveling with goes bankrupt.
• Legal separation or divorce. This is a unique coverage, which provides coverage if you are separated or divorced after your policy effective date and before your departure date. 
• You are required to work and need to cancel the trip. Some premium plans include this type of coverage. Others offer it as an optional upgrade, i.e. “cancel for work reasons” coverage. This type of benefit often covers other work-related reasons such as: your place of work becoming uninhabitable and you are in charge, or your company is involved in an acquisition.
• The school of the insured’s children hold classes beyond the normal school-year. This is an interesting coverage not provided by all companies, but is great for traveling parents.

As you can see, there is a long list of “covered reasons” for trip cancellation. With an exception for the last group, these are fairly common and standard with most plans. However, it is still crucial that you read and understand the policy you purchase. 

 

So, do you need trip cancellation coverage?

As much as we’d like to give you a one-word answer, this is one of the trickiest questions in travel insurance. So, we’ll provide a short answer and a longer answer.

 

The short answer

Yes. If you want to have “full coverage” for your trip, it is smart to purchase a plan with trip cancellation coverage. Even a last-minute trip has a chance of getting derailed by an accident, sickness or other unexpected reason.

A common rule of thumb says, “If the cost of the trip is more than you’re willing to lose, buy insurance”.

 

The longer answer

It depends on the travel plans, the people traveling, and the amount of money at risk.

For example, if your travel plans have you departing several months from now, there is a long period of time for something to go wrong. If you are planning a complicated trip with several stops and connections, you have a higher risk of something going wrong.

Or, consider the people traveling. Parents with young children, regardless of whether they are traveling with you or not, have a risk because children can get sick and/or require your care. Travelers with elderly parents also have concerns about an illness requiring their care, or the unfortunate passing of a parent.

Furthermore, take into account the amount of money at risk. Travelers planning a once-in-a-lifetime vacation have made a big investment in their trip, and losing it would be devastating. Even a couple thousand dollars lost due to a last-minute cancellation can be difficult to deal with.

 

Trip cancellation coverage is a smart buy for…

Expensive trips- Since cancellation insurance is all about protecting your investment, it is always a good buy when you are spending a good amount of money on your trip. Some travelers buy trip cancellation to cover a couple hundred dollars, while others only buy it when they’re risking thousands.

According to statistics released on www.InsuranceNewsNet.com, the average trip cost for travelers buying travel insurance is between $2,300-$3,000. This is an average, so some travelers might have insured a $1,000 trip while others insured a $7,000 trip. Recommendation: If you want that “fully covered” feeling, buy trip cancellation coverage regardless of the amount at risk. Some travelers insure trip costs as low as a couple hundred dollars. 

 

Cruises- Cruises are especially difficult when it comes to cancellations and getting a refund. Many companies have different levels of refunds, depending on how much time in advance you cancel the trip. For example: you might get a full refund if canceled 70 days prior to departure, but only a 50% refund if within a month of departure.

Cruises are one of the most common insurance-buying situations. They are typically expensive, they involve complicated travel plans with departure flights and port-of-calls, and from a medical standpoint you’re floating in out in the ocean with no hospital close by. Recommendation: All travelers taking a cruise should buy travel insurance, but never from the cruise company itself. The coverage they sell is never as comprehensive as a third party provider. Always buy travel insurance from an independent company.

Travel plans made far in advance- The concept of trip cancellation insurance is to protect you from mishaps between the time you book the trip until you leave. If there is a lot of time between booking and takeoff, you have a higher chance of something going wrong.

Here again, every traveler is different. Some people buy trip cancellation when they’re departing in a week; others only buy it when they’re planning a trip in several months. According to statistics, the average time between purchase and departure is about 2 months. Recommendation: If you want full, comprehensive coverage for your trip, purchase trip cancellation for anything other than “last minute” trips.

International flights that are expensive and non-refundable- There are 2 potential problems with international airfare; the tickets cost a lot of money, and they are almost always non-refundable. If you need to cancel your trip, there is a good amount of money at risk. Recommendation: Insure the cost of pricey international airfare.

Domestic airfare “specials” that are non-refundable and non-changeable- Many domestic tickets are changeable, subject to a $50-$100 penalty. But many airline tickets purchased as a “special” fare are especially un-flexible, and insuring the cost of these tickets is a good idea. Recommendation: Insure the cost of airfare when it is non-changeable.

 

Cases where you might not need trip cancellation coverage:

Last minute trips- Since trip cancellation coverage is for unexpected emergencies between the time of purchase and departure, you probably don’t need it for last-minute trips. If you’re booking a flight in 2 days, you’ll probably make it.

Cheap trips- If the cost at risk is not high enough to worry about, there is no need to insure against it’s loss. If your only pre-paid, non-refundable trip cost is a $219 flight, the overall potential loss is not very high. If you lose it for some reason, it’s not a devastating loss.

Some domestic trips- When traveling domestically, the risks are lower as well because most plans can be changed if necessary. Hotel reservations can (typically) be changed up to 24 hours prior to arrival without penalty; as with most rental car reservations. Furthermore, domestic airline tickets can usually be changed for a small fee, so the overall risk of loss is not high enough to insure. Of course, this depends on your specific plans, so please consider your individual situation to make sure you’re not risking your trip expenses.

 

Section Summary

• Trip cancellation coverage provides reimbursement for lost travel expenses if you need to cancel your trip.
• Every insurance policy provides a specific list of “covered reasons” for trip cancellation
• Buy trip cancellation insurance if you have concerns about losing money: “If the cost of the trip is more than you’re willing to lose, buy insurance” 
• Buy trip cancellation as early as possible to take full advantage of the coverage
• There are a few situations when trip cancellation might not be necessary

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