Does travel insurance cover bankrupt airlines?

Some travel insurance plans cover the financial losses insured travelers incur as a result of travel suppliers who are in bankruptcy. It’s important for travelers to understand, however, how a travel insurance provider defines bankruptcy.

The travel insurance coverage for bankrupt airlines is typically isolated to the following:

• Trip cancellation and/or trip interruption – as in when the traveler incurs unexpected financial losses due to travel arrangements that are cancelled by an airline due to their financial default or bankruptcy.

It’s important to note that this coverage is isolated to cancellations – not delays.

Some travel insurance plans with ‘cancel for work reasons’ allows an insured traveler to recuperate their non-refundable trip expenses in the event their company’s operations are interrupted by bankruptcy.

How travel insurance plans define bankruptcy and financial default

Some travel insurance providers combine ‘financial default’ and ‘bankruptcy’ and the terms are defined in their travel insurance plans as such:

• Financial default is defined like this: “a complete cessation of operations due to financial circumstances with or without filing for bankruptcy protection.”
• Bankruptcy is defined like this: “the filing of a petition for voluntary or involuntary bankruptcy in a court of jurisdiction.”

These definitions are important to understand because even though an airline may have filed for bankruptcy protection, their services may not be completely stopped and they could be running a little slower and those delays would not be covered by your travel insurance plan.

Limitations on travel insurance for bankrupt airlines

As you know, travel insurance only covers events and situations that have not occurred yet but there is often warnings that an airline will be bankrupt long before it happens. As a result, travel insurance plans limit coverage for bankruptcy to a financial default that occurs some days after your travel insurance purchase.

Here’s an example: The financial default happens more than seven days after your plan’s effective date.

This means the traveler must have purchased their travel insurance well in advance of the announcement that an airline is in financial default and when the bankruptcy was not expected. Note that some plans require much more time – sometimes 14 to 21 days in advance.