There are two types of coverages when people mention “Travel Insurance”.  One is travel accident insurance and the other is trip cancellation insurance.  Travel accident insurance will reimburse you for medical and related expenses incurred while overseas.  Trip cancellation insurance will reimburse you for the cost of your trip, such as flight, hotel, tours etc…  This article will focus on the latter.

The goal of trip cancellation insurance, like most insurance, is to make you “whole” for some event covered by the policy.  So, if your pre-paid or non-cancellable costs are not recoverable, the trip cancellation insurance is meant to give you the money back you spent on your trip but didn’t get to enjoy.

As with most insurance, there are two key provisions to look for when buying a trip cancellation policy. The first and foremost is the quality of the insurance company.  Is the insurance company rated by a rating agency (such as AM Best or Standard & Poors) for their financial stability?  How long have they provided travel insurance?  What are the coverages or exclusions?  Most importantly, will they be there when you need them.  In these economic times, it doesn’t matter what the premium charged or the coverages are, if the insurance company is not solvent, you’ve wasted your hard earned money.

Why would you buy travel insurance?  As with all good risk management, you need to determine the likelihood of cancellation and how severe the financial impact would be should you cancel.  Here are two extreme examples:  First, you and your family are going to Miami to take a 7 day Caribbean cruise.  It is the middle of winter and you have to connect through Chicago.  The next is a day trip from Dallas to Houston where you have no luggage and just a carry-on.  For which trip would you purchase trip cancellation insurance?

Clearly trip number one would have both a larger impact financially and a greater likelihood of a problem.  Flights in Chicago can be delayed or cancelled due to weather and if you miss the boat, you’re vacation is over before it began.  For trip two, if your flight is cancelled you could always hop in the car and drive from Dallas to Houston.

So, when you’re deciding whether or not to purchase travel insurance, evaluate the cost of the trip, the likelihood of cancellation, the quality of the insurance company, and the events that are covered and excluded.  Finally, enjoy your trip!!