The Takeaways:
- There are numerous ways for your trip to go wrong. Most Americans however are likely not interested in buying trip insurance.
- Common reasons for saying “no” to travel insurance include safe trip before, low cost trips and saving money. Safe trip before does not mean safe trip today or tomorrow, as insurance is mostly about covering unexpected events.
- Travel insurance mostly protects oneself — during the trip, with coverages ranging from trip cancellation, travel medical insurance, lost or damaged baggage, emergency evacuation and travel accidents.
- The most unique feature of travel insurance is not necessarily low coverage payment but short duration: It ends when the trip ends, although sometimes they offer short extension. For this reason, having travel insurance is not enough for most people, as we need longer lasting and more comprehensive insurance like auto insurance, homeowner insurance and life insurance.
The Scaring News from the US Airports
Did you know that roughly 18 guns were seized every day at US airports last year? It is true according to the Transportation Security Administration (TSA) that intercepted 6,542 guns last year, which translated to roughly 18 guns per day, at airport checkpoints across the country.
Guns are not the only thing to be worried. Today on February 23, 2023, the news says a brutal winter storm is walloping the entire country coast to coast. Flights are cancelled, highways closed, “trapped drivers in cars, knocked out power to hundreds of thousands of people and prompted the first blizzard warning in Southern California in decades — and the worst won’t be over for several days.”
The Low Prevalence of Travel Insurance
Travel insurance is not the most popular choice for most American travelers. In a survey of more than 1,200 Americans planning on traveling (during the pandemic), only 23% would definitely buy insurance and 21% might do so. 56%, the majority, had no plan to buy any travel insurance.
Insurers were still happy to see these figures because the thought was that in this particular study “most imminent travel looks to be family- and friends-oriented — and perhaps less expensive and closer to home — may account for the lack of interest in trip insurance.”
A more recent study published by Business Insider in 2023 of 971 US adults however shows that explanation is not strong. “About 62% of travelers surveyed did not purchase travel insurance; of those travelers, 35% said their primary reason to forgo insurance was because they’d traveled before and never needed it. About 19% said they didn’t think their trip was expensive enough for insurance, and about 14% said they were trying to save money. About 13% said travel insurance never occurred to them.”
These reasons revealed the typical mindset not just on travel insurance but insurance in general.
Should We Forego Travel Insurance Because We Had Safe Trip Before?
I asked the above question to ChatGPT, and it comes back with the following:
“No, you should not forego travel insurance simply because you have had safe trips before. Even if you have been lucky in the past, unexpected events such as natural disasters, medical emergencies, and cancellations can still occur and ruin your trip. As a rule of thumb, if you are spending more than $5,000 on a trip, it is considered a big-ticket purchase, and travel insurance is recommended to protect your investment.”
I agree that “big ticket” travel plans (those above $5,000) should be covered by travel insurance, although smaller ones should as well. Remember in the earlier report about 19% said they didn’t think their trip was expensive enough for insurance? That is a myth. Short trips are associated with smaller airplanes and there can be cancellation and unexpected events just like big trips.
Considering that the travel insurance cost on average of 6% of the total travel cost, for a trip that costs $200, the travel insurance part only takes $12 from you. This differs significantly from the $300 you would have to pay for a $5,000 trip.
A Deeper Question about Insurance
There is a deeper reason for buying insurance, including travel insurance: Insurance is about unexpected events or accidents, designed to protect us from financial losses resulting from accidents, illnesses, natural disasters, and other unforeseen circumstances.
This is why you still need to buy travel insurance even though your previous trips were all safe.
Ask yourself if you can expect all future trips to be safe just because the previous trips were safe. If the answer is yes, then you don’t need to buy insurance from now on. But of course the answer has to be no, like what they say for investment: Past successes does not guarantee future success.
What about expected events? Well, most of them will NOT be covered by insurance. You know your car needs maintenance in the future, so your car insurance will not cover that. Similarly, you know you will need to replace your roof due to normal wear and tear, so your homeowner policy will not cover that.
This is not saying insurance excludes all expected events. For example, some health insurance policies may cover routine medical care or preventative services, even though these events are expected to occur. This is risk management of your insurer because routine medical checkups help reduce the loss for them — and for you.
What Do You Get from Travel Insurance
Once again from ChatGPT we have the following list:
- Travel Medical Insurance: This type of insurance provides coverage for medical emergencies and expenses that may arise while you are traveling. It can cover things like doctor visits, hospitalization, and emergency medical transportation that’s not covered by your regular health insurance plan.
- Trip Cancellation Insurance: This type of insurance provides coverage if you need to cancel your trip due to an unforeseen circumstance, such as a medical emergency or a natural disaster. Sometimes “cancel for any reason” is provided as well.
- Personal Accident Insurance: This type of insurance provides coverage for accidental injury or death that occurs during your trip. This is a first-party coverage, meaning for yourself rather than for anyone else.
- Emergency Evacuation Insurance: This type of insurance provides coverage for emergency medical evacuation if you are injured or become seriously ill while traveling and need to be transported to a medical facility. You could be taken to the nearest hospital or flown home if necessary when you’re injured, or you get sick on a trip.
- Travel Insurance with Medical Coverage: This is a comprehensive insurance policy that combines several types of coverage, including medical coverage, trip cancellation coverage, and other travel-related coverage. It provides more extensive protection than a single policy and can be customized to fit your specific needs.
In many ways, travel insurance is like car insurance with a focus on self-protection rather than protecting “third party” or anyone else involved in an accident.
Note in addition to the above list, other coverages are possible like lost, stolen or damaged baggage & personal belongings, rental car damage and even finding a lawyer abroad.
Cancellation Insurance vs Free Hotel Night(s)
Don’t confuse trip cancellation insurance with free hotel night(s) provided by airlines. The former means you can get your booking money back even for non-refundable expenses like airfare, hotel bookings, and tours if for unexpected reasons such as illness, injury, death in the family, natural disaster, or other covered reasons you had to cancel your trip. The coverage may also apply if you have to interrupt your trip and return home early due to covered reasons.
Cancellation insurance can be purchased as a standalone policy or as part of a comprehensive travel insurance plan.
On the other hand, free hotel night(s) provided by airlines when a flight was cancelled has little to do with insurance. instead it is a benefit by some airlines to their customers who experience flight delays or cancellations due to reasons within the airline’s control, such as mechanical issues, crew scheduling, or weather. In reality, airlines do that even for reasons beyond their control, like bad weather conditions.
Travel Insurance for Foreign Trips
What about your plan for a foreign trip? I asked ChatGPT and here is what I got:
“If you are planning to travel abroad, it is important to consider purchasing travel insurance to protect yourself in case of injury or illness during your trip. Here are some types of insurance that can provide coverage for injuries sustained during a foreign trip:”
- Travel Medical Insurance: This type of insurance provides coverage for medical expenses that you might incur while traveling abroad. It typically includes coverage for emergency medical treatment, hospitalization, emergency medical evacuation, and repatriation of remains in case of death.
- Accidental Death and Dismemberment Insurance: This type of insurance provides coverage for accidental death or permanent disability resulting from an accident that occurs during your trip.
- Personal Liability Insurance: This type of insurance provides coverage for damages or injuries that you might accidentally cause to others while traveling abroad.
- Trip Cancellation Insurance: This type of insurance provides coverage for non-refundable expenses if you have to cancel your trip due to a covered reason, such as illness or injury.
As you can see, the coverage are basically the same as domestic coverages, even though the way ChatGPT presented may have created an impression that only foreign travel insurance will cover accidental death and dismemberment insurance as well as personal liability insurance. The truth is both domestic and foreign travel insurance can make those coverage available.
As the news told us earlier, death or dismemberment insurance can be even more important in this country than in foreign trips given the number of guns intercepted at the airports within this country.
Looking at the Big Picture
Do not forget the big picture in which travel insurance is just a small part, and normal and travel insurance can be related to each other.
If your “normal” liability insurance policy includes coverage for personal liability, it may cover you while you are traveling. For example, if you accidentally injured someone while on vacation or damaged someone else’s property, your liability insurance may cover those for you. However, if you are traveling internationally, your liability insurance policy may not provide coverage in certain countries or may have limited coverage.
Life insurance may be related to travel insurance as well. Some travel insurance policies may offer coverage for accidental death or dismemberment, which could be seen as a form of life insurance. Additionally, some life insurance policies may also offer travel benefits, such as emergency medical coverage while traveling abroad.
There will be overlapping between the two. That said, life insurance is a long-term insurance designed to provide financial protection to your loved ones in the event of your death, while travel insurance is designed for the traveler. Life insurance is also intended to cover a broad range of expenses, such as funeral costs, outstanding debts, and the loss of income that your loved ones would experience after your death.
It is not that travel insurance policies only pay small amounts in the event of financial loss. The payment amount for death in travel insurance for example can range from a few thousand dollars to several hundred thousand dollars, depending on the policy and the level of coverage you have chosen.
On the other hand, some small life insurance policies, especially term life insurance (those covering for a fixed number of years up to 30 years), typically have face values (i.e., the amount they will pay your beneficiaries or your loved ones) starting at around $25,000 or $50,000.
So payment amount is not crucial as one can always pick and choose the amount of payment desired for both travel and life insurance. The most important feature for travel insurance is its relatively short coverage duration. Once the trip is over then typically the coverage is over, although some travel insurance policies may have a coverage extension period that provides limited coverage for a specified number of days after the trip has ended. For this reason, we typically need both travel insurance and life insurance.
