Insurance Basics Part 2: A Deep Dive on Travel Insurance

The following is not financial or tax advice. Please consult a CPA or investment professional before making tax or investment decisions.

You are about to book a flight and you see a pesky option that forces you to make a choice, buy travel insurance for $X or risk losing your flight cost if you have to cancel. Bloggers and various finance influencers often tout travel insurance. For the vast majority of the population on almost all trips, it does not make sense to get travel insurance, but there are major exceptions. In my estimation, medical travel insurance has one of the best cost to potential benefit ratios and may make sense for many travelers. People with premium credit cards are likely to have some travel insurance coverage as a card member benefit and should check their coverage before purchasing a separate travel insurance policy. In this article I will go through travel insurance basics, use cases where it may make sense, how to use your credit cards’ built-in travel insurance, and how to file a claim.

How does travel insurance work?

Travel insurance covers the cost of your trip if you need to cancel or have major issues during your travels. You will not receive reimbursement for the entire cost of your trip, only the non-refundable costs you incurred.

Important Terms

• Effective dates – the date that coverage for trip cancellation starts
• Departure date – the day you leave for your trip. All coverage other than trip cancellation start on this date.
• Deposit date – the day you made your first payments towards a trip. Many forms of coverage such as pre-existing medical conditions, financial default, or cancel for any reason require that you purchase policies within 10-21 days of this date.
• Multi-trip or annual – you are covered during a specific period of time during which you can travel as many times as you want.
• Return date – the day your come back from your trip. All coverage ceases the day you return.
• Single trip – coverage that lasts during one trip.

What is the cost?

According to Nerd Wallet, the average cost of travel insurance is 6-7% of your trip cost, although I have seen estimates elsewhere of 4-10%. The cost of travel insurance will vary based on the type and amount of coverage, length and cost of your trip, the riskiness of your destination, the activities you plan on doing, and your age and health. The longer, costlier, riskier, and more dangerous your trip, the more expensive your coverage will be. Similarly if you are older and have pre-existing conditions your coverage will be more expensive than for a young healthy person. A trip to go sky diving in Fallujah, Iraq will likely be almost impossible to insure and insanely expensive whereas insuring a trip to Cleveland Ohio to see the Rock and Roll Hall of fame won’t cost much.

Individual vs. family

You can purchase travel insurance for yourself or your family. The cost of insuring your whole family is likely cheaper on a per-person basis and you may get significant discounts or children insured for free. Credit card based coverage typically covers everyone in your immediate family that is traveling with you.

When to get traveler’s insurance

• You are going to a destination where a major health issue or accident is a decent possibility (severe food poisoning, rural area in a poor country, dangerous roads/drivers, cruises)
• When you are traveling with a lot of expensive, non-refundable fares
• You engage in high-risk activities such as scuba diving, racing, downhill mountain biking or sky diving

When you don’t need travel insurance

• None of the above applies to you or your trip
• Your air and hotel bookings are largely refundable
• You are going to a low-risk destination or traveling domestically in the US
• You have a high enough net worth that even a six-figure bill wouldn’t cause financial distress
• You have premium credit cards that provide part of the coverage you normally need

What does travel insurance cover?

There are four forms of travel insurance: medical expenses and emergency medical evacuation, trip cancellation or interruption, trip delay, and baggage loss or delay. A comprehensive travel insurance policy will cover all four, but you can also purchase them separately. Medical and trip cancellation/interruption insurance are the more important of the four coverage types as they deal with risks that are potentially more expensive.

Medical expenses and evacuation

American health insurance will normally not cover regular medical care overseas, but some may cover emergency room care. Trip insurance can provide you with limited medical insurance when you are traveling abroad. Note that unlike normal health insurance, medical coverage obtained through travel insurance policies excludes pre-existing conditions. Usually there is a look back of 60-180 days wherein if you became ill with the same or a related affliction it would be excluded from coverage. High risk activities such as extreme sports, scuba diving, and racing may also be excluded and require supplemental policies. Similarly, treatments that are not medically necessary or elective procedures are not typically covered.

Types of medical travel insurance:

• Primary vs. Secondary
  • Primary- you submit claims directly to your medical travel insurer
  • Secondary – you submit claims to your health insurance provider before you submit a claim to your travel insurance provider
• Emergency medical
  • Covers the cost of treatment for medical emergencies during your travel period.
  • Routine medical expenses such as a physical will not be covered, but a broken bone would be.
  • Limits: $50k-250k
• Emergency medical evacuation
  • Pays for you to return back to the US or for transportation to receive care if for example you are in a rural area. In most cases the evacuation is to a nearby medical that is capable of proper care. Medical evacuation can be extremely expensive so this coverage has the highest limits.
  • This coverage also pays for a friend of family members to travel to your bedside if you are hospitalized more than 7 days and transport for your dependents back home.
  • Limits: $100k-$1m, standard limits: $100k-$250k
• Accidental death or dismemberment
  • Life insurance like payment. You receive a lump sum payment if you lose a limb. If you die your beneficiaries receive a payment. Under some policies this coverage can be supplemental to existing life insurance.
  • Common carrier travel accident insurance is a similar form of insurance that only applies when you are traveling on a common carrier (airplane, train, bus, or boat that follows a regular route). Credit cards often provide common carrier coverage.  
  • Limits: $10k-50k

Medical travel insurance coverage has the strongest value proposition of the four forms of coverage and in some cases may be worth getting. It is also extremely reasonably priced, costing only cost an average of $5 a day according to Squaremouth, a travel insurance company. Forbes quotes even lower prices of a few dollars per day based on a 35-year-old traveling to Mexico for one week with a coverage limit of $100k and deductible of $100. Deductibles are relatively low in the $50-250 range, but you can get cheaper policies with up to $2,500 deductibles. If you are prone to sickness or traveling to somewhere you may get food poisoned and you have a lot of pre-paid or non-refundable expenses, then medical travel insurance may make sense.

Unlike all other forms of coverage listed here, very few credit cards offer medical travel insurance. The Chase Sapphire Reserve offers $2,500 in coverage with a $50 deductible, which is better than nothing, but won’t cover much in the event of a serious injury. A larger number of cards including the Platinum Card from American Express and the Chase Sapphire Reserve offer emergency evacuation insurance. The Amex Platinum card has particularly generous evacuation insurance which has no cap and extends to immediate family and children under 23 or 26 if they are enrolled full-time at school. Unlike most other forms of coverage, Amex doesn’t require you to pay for the trip with your card for the coverage to apply, it just needs to be a trip further than 100 miles from your home and with a duration of less than 90 days.

Also always keep in mind that for the most part medical care is significantly cheaper outside the United States so the total costs of most minor emergencies are not the headline catching numbers you see in the United States. Medical evacuation is always expensive. If you are planning on going to a relatively remote rural area that doesn’t have access to good medical care then consider a higher medical evacuation limit. It will be more costly, but will pay for itself many times over if you need it. Getting evacuated off a cruise ship can also be very costly and is another solid use case for a plan with a high medical evaluation limit.

Trip Cancellation or interruption

Trip cancellation coverage pays for the prepaid, non-refundable reservations if you have to cancel the trip for a covered reason. The little boxes that ask you to insure your flight are a form of trip interruption insurance. Trip interruption insurance covers you after your trip begins if you have to end the trip early for a covered reason. Note that you have to notify the insurer within 24 hours of an interruption event.

Covered reasons usually include the following: medical issues including sickness or injury of you or a family member/traveling companion, quarantine, extreme weather, death of your traveling companion, jury duty that can’t be excused, military re assignment, transportation related accidents, terrorist incidents, loss of a job, theft of a passport or visas. Trip interruption can also cover instances where your accommodations are uninhabitable, if for example your hotel floods from a burst pipe and can’t accommodate you.

Exclusions or reasons for interruption/cancellation that are not usually covered include traveling in the seventh month or later of pregnancy, a pre-existing condition, doing anything illegal, participating in extreme sports or races, hurting yourself, or traveling against the advice of a doctor. A major exclusion is also foreseeable events. For example, if you travel to the Caribbean when there is a massive hurricane in the middle of the Atlantic. You obviously knew that the hurricane was a likely risk, but took the trip anyway.

Given the availability of alternatives and the refundability of many booking types, in most instances, trip cancellation or interruption insurance is not worth purchasing. There are now so many other cost-less alternatives to trip cancellation and interruption insurance that unless you have an astronomically expensive vacation which consists primarily of non-refundable airfare and hotel stays, in most cases it’s probably not a coverage worth getting. Premium credit cards often provide travel cancellation and interruption insurance for free with coverage as high as $20k per incident. Most hotel stays are fully refundable as is airfare booked with points. Some paid airline tickets are also refundable or can be used for future travel. 

Trip Delay

Trip delay insurance protects you against additional expenses you incur when your travel on a “common carrier” is delayed. Not all delays are covered by these policies, rather a delay must last a minimum of 6-12 hours or longer in some cases. Trip delay insurance typically covers food, lodging, toiletries, medication, and transportation to your hotel. There is usually a maximum limit on this coverage of $100-$5,000 a person and daily reimbursement caps of between $100-300 per person.

Credit cards often provide secondary trip delay coverage meaning the coverage only kicks in after you receive payment from the airline. Unlike other benefits which can vary significantly, credit cards almost universally have the same $500 per ticket or per trip maximum coverage amounts. Virtually all of the cards have 6 or 12 hour minimum required delay lengths.

Note that if you are traveling out of several countries you can request compensation for delayed flights. Brazil, Canada, China, India, Mexico, and Turkey all provide some forms of cash compensation in the event of long delays. Other countries such as Australia and Japan require airlines to provide refunds or accommodations.  

In the European Union (as well as Switzerland and Iceland) you can automatically request compensation from carriers if your flight is delayed because of factors such as mechanical failures or operational issues that are within the airlines control. In the EU if a flight is delayed over 2 hours for flights shorter than 1,500 km, 3 hours from 1,500-3,500km, or 4 hours for 3,500km you can receive €250/€400/€600 in cash or €350/€500/€800 in non-refundable transportation credit. The UK has the same distance thresholds but with different time delays and compensation rates. See the chart below.

Filing the paperwork to get reimbursed is somewhat of a pain. AirHelp will do it for a 35% commission or 50% if court proceedings are needed. They only get paid if you do. I used it in the past for a claim in the UK and for less than ten minutes of effort I got more than $1,000 in compensation from British Airways.

The risk of a trip delay being financially ruinous is really low. This fact coupled with the availability of other forms or reimbursement and free trip delay insurance offered by many premium credit cards, mean it typically isn’t worth it to purchase trip delay insurance.

Baggage Loss or Delay

Baggage delay insurance like trip delay insurance doesn’t kick in until your luggage is delayed a certain minimum period of time, typically 6 or 12 hours. You are reimbursed for the cost of essential items such as toiletries and a change of clothes. Limits are typically $100-1,000 per person total and $100 per day per person with a maximum of 5 days. Most airlines will reimburse you for reasonable expenses with maximum caps that are usually lower than travel insurance limits. Two airlines also have a minor built in form of delayed bag insurance Delta and Alaska give you 2,500 points in the event your bags are delayed more than 20 minutes.

Baggage loss insurance provides you with a reimbursement for the contents within the lost luggage up to a certain dollar amount. Higher end items are normally exempted from coverage, but may in certain instances be covered under your home owner’s insurance policy. The average coverage is usually between $500-2,500 per traveler and then there are frequently sub-limits for higher value items such as jewelry or laptops.

You are typically reimbursed for the actual cash value of the items lost, not the replacement value. If you lost a 3 year old laptop that is worth $300, but was purchased for $2,000, you will receive $300, not the $2,000 it originally cost. Similarly, if you have receipts for the items in your luggage you can get reimbursed for them, but in the likely event you do not, you will get actual cash value including depreciation. A 10 year paid of $300 hiking shoes will likely be reimbursed at a fraction of replacement shoes. Visa and passport replacements are normally covered.

Baggage delay or loss insurance is often secondary coverage, meaning you file with the common carrier or home/renter’s insurance first. Airlines will provide you with some compensation although it varies by airline. Airlines have a maximum compensation level for lost baggage per passenger of $4,700 on domestic flights and $1,700 on international flights. Nerdwallet has a comprehensive list of each domestic American airlines’ deadlines and compensation times.

Many plans have extensive exclusions including electronics, cell phones, contact lenses, musical instruments, antiques, and eye or sunglasses. Cash is almost always excluded (I swear I had $5k in my luggage!). Baggage loss insurance only covers common carriers such as planes, trains, and ferries. Transportation such as rental cars, Ubers, Lyfts, and taxis are excluded from coverage.

Claims for lost or delayed baggage usually have shorter filing requirements than other forms of travel insurance. Typically have to file within 20-30 days of returning from your trip. As the coverage is most often secondary you have to start by notifying the airline of the delayed or lost luggage and get documentation from the airline confirming the delay. They will likely not confirm the luggage is lost for a period that varies from 5-14 days. Keep receipts of all the items you purchased during the delay and any documents you get such as a delivery notice that confirms when your delayed bag was delivered. After you file a claim, you will be sent a proof of loss form that you return along with the previously mentioned receipts and documentation demonstrating the delay or that the luggage was lost.

A large number of cards offer delayed baggage or lost luggage insurance.  The cards are almost universally secondary coverage. Chase cards that offer delayed baggage protection usually have a $100 per day maximum. Most Amex cards offer lost, damaged or stolen luggage insurance but do not offer trip delay insurance. Visa Infinite cards (Capital One Venture X, United Club Card, Chase Sapphire Reserve) offer $3k of lost luggage per person per trip. Mastercard offers up to $3k per person per trip on many World and World Elite Master Cards.

Baggage loss and delay insurance is marginally useful in most cases. You will likely receive some compensation from airlines and many cards have some form of built in delayed and or lost baggage insurance.  Airtags and other trackers can also help reduce the likelihood that your bag is lost. If you primarily travel with a carry on you avoid any possibility of it being lost.

What are supplemental policies?

In the event that you need coverage that will cover you for excluded activities, cover you with preexisting conditions, or for limits that are higher than normally offered in standard policies, you can purchase supplemental policies. World Nomad is one of the best known providers of insurance for activities such as skiing or scuba diving that are normally excluded from coverage. Travel Guard has policies for travelers with pre-existing conditions.

What are Cancel For Any Reason policies

The costliest form of trip cancellation or interruption insurance is “cancel for any reason” (CFAR) insurance. As the name implies, this kind of insurance lets you cancel your trip for any reason up to 2 days before your trip and receive a partial refund on the non-refundable trip bookings. Somewhat confusingly it does not refund you 100%, but usually 50-75% of the non-refundable parts of your trip. According to Business Insider, CFAR premiums are 40-50% higher than an equivalent standard comprehensive travel insurance plan.  In most cases CFAR policies aren’t worth getting unless you have a particularly expensive, long trip that would be extremely costly if you had to cancel and it largely consists of pre-paid, non-refundable bookings.

Annual policies

Rather than buying separate travel insurance for every trip you take, frequent travelers can potentially save money by purchasing annual travel insurance. The cost of annual insurance is relatively budget friendly with the four insurers Nerd Wallet recommends charging between $94-506. Although you are generally covered for a year, insurers have a maximum per trip length of 30-90 days. Annual travel insurance is typically a comprehensive policy that includes the four major forms of coverage above. The comparative ease of only having to purchase it once a year and decent coverage of annual policies make them a good alternative for frequent travelers.  

How to file a claim

Step 1 – Gather information

Gather as much documentation as is possible from your trip including:

• Receipts for any expenses you incurred that were due to a delay or loss or for non—refundable trip-related expenses. This can include obvious expenses such as hotel, tour, and airfare, but can also include other costs such as meals and transportation during an interruption, loss, or delay.
• Medical bills
• Police reports
• Formal itineraries
• Death certifications

Step 2 – File the claim online, on their app, or over the phone

Travel insurance companies have portals that allow you to upload all the relevant documentation and file a claim. This will usually be faster than filing over the phone. Try to file as soon as is possible, typically you have 90 days after an incident to file a claim. However for trip interruption insurance you have to notify the company that you have experienced a loss within 24 hours of occurrence. Once you have uploaded the requisite documents you will be asked to complete and sign a claim form.

Step 3 – Claim is processed and payment is issued

Successful claims are generally processed within two weeks, but can be processed more quickly.

Step 4 – Dispute a claim if you are denied

Claims are commonly denied because of inadequate or incorrect documentation, excluded incidents, waiting too long to file, illegal conduct, and undisclosed pre-existing conditions. If you are denied, attempt to submit an appeal. If you are still denied and the claim is substantial you can always attempt to bring suit, but most travel insurance policies contain arbitration clauses that may make your case more difficult to win than in court.

Should I get traveler’s insurance?

For most people traveler’s insurance is not worth it, but you may have unique circumstances that make it worthwhile. Medical travel insurance has the best value proposition as the cost of evacuation or major surgery can be many times the cost of your policy.

Credit card travel insurance

Travel insurance is one of those credit card benefits you don’t often think about. However, they can take some of the sting out of a bad travel experience and end up saving you hundreds or even thousands of dollars. In order to find out if and to what extent your credit cards provide travel insurance, login to your credit card’s portal and click on the benefits section. Then look for travel insurance or one of the coverages above. The links below also provide lists of which cards have each form of coverage.

In order for credit cards to provide you with a travel insurance benefit you must use the card for at least a portion of your purchase. Major credit card issuers have different language around whether or not you need to put the entire or just a portion of a purchase on the eligible card to receive travel insurance benefits. Chase cards provide insurance benefits if all or a portion of your fare is charged to your card or uses the card’s rewards. Amex requires that you charge the entire amount of the covered trip on your card or use Amex points. Capital One has language that is similar to Chase.

List of cards that provide:

Medical Travel Trip cancellation Trip Delay Baggage Delay

How to file a credit card travel insurance claim

Step 1 – Gather information

Gather the information outlined above in step 1 under “How to file a claim”

Step 2 – Call the customer service number on the back of your card

Step 3 – Send requisite documents and sign claim form

Largest Travel Insurance Companies

The Points Guy has a great overview of the major travel insurance providers.

Further Reading and Sources

• US Travel Insurance Association
• Travel Basics
  • Upgraded Points
• Comprehensive travel insurance
  • Nerd Wallet
• Overview of credit card specific benefits
  • Nerd Wallet
• Medical Evacuations
  • Allianz
• Trip Delay
  • Nerd Wallet      
• Baggage delay and loss insurance
  • Forbes
  • Nerd Wallet
• Claim filing process
  • CNBC
• Annual trip insurance
  • Allianz
  • Nerd Wallet
• Travel insurance policies and providers
  • The Points Guy
• Getting travel insurance vs. using credit cards
  • The Points Guy
• Travel Insurance Comparison Site
  • Insure My Trip