Overselling Travel Insurance

From the October 2010 issue of National Geographic Traveler

Conventional wisdom about travel insurance was that if you can’t afford to lose the vacation, insure it. Take out a policy on a round-the-world cruise if it costs more than a Honda, but consider cheaper vacations disposable (if not partially refundable). Before 9/11, roughly one in ten leisure travelers bought insurance, estimates the U.S. Travel Insurance Association (USTIA), a trade group. But after the 9/11 attacks, interest in travel insurance took off. So-called take-up rates—the portion of leisure travelers who buy insurance—jumped to about one-third. More recently, a once-in-a-generation recession, an Icelandic volcano that choked off air travel to Europe, and several airline strikes created even more interest in insurance, turning conventional wisdom upside down. Now, if you can book it, you should insure it. Or should you?

Maybe not. The industry wants us to believe we can’t live without travel insurance, of which there’s a seemingly infinite variety covering far more than just big-ticket excursions. Book a discounted airline ticket, and your air carrier will offer a $19 policy. Today’s coverage protects you against everything from interruptions to dismemberment. You can even buy travel insurance for your pet. No, really. A policy for my three-year-old Bengal cat, Pollux, costs between $14 and $24 a month, if I decide to take him on vacation with me. Good thing he’s a homebody.

Insurance companies insist their dizzying array of products meets our need for peace of mind. Through many online travel agencies, including giants Travelocity and Orbitz, they even force you to opt out of buying travel insurance when you book a package vacation. That’s right, you have to uncheck a box if you don’t want a policy. It makes you wonder if the industry is getting too big for its own good, or at least for yours.

The industry says that most claims are honored. Of the one in six policy purchasers who make a claim, fewer than 10 percent are turned down, according to the USTIA. What’s more, many rejections are overturned after a traveler furnishes additional details about the case.

I’m not convinced that these figures tell the entire story. My experience with adjusters leaves me with the strong impression that they’re rewarded on how many claims they deny. Not true, says Linda Kundell, USTIA spokesperson. “I really doubt travel insurance companies would gain consumer confidence if they turned down as many claims as possible,” she says.

Still, it makes you wonder about the 10 percent rejection statistic. Are more five-figure claims rejected on technicalities? Do travel insurance companies tend to pay only the claims that don’t come close to the limits of coverage? The insurance industry says it’s blind to the amount of the claim, handling each one by the book. Perhaps. Or perhaps the book is written so the traveler rarely receives a payout. I’ve seen too many large claims thrown out because of the fine print to believe the industry is as evenhanded as it says.

Here’s a recent case that crossed my desk: Jennifer Stromquist insured her Midwest Airlines flights from Fort Lauderdale to Phoenix last spring, but before she could leave, her 80-year-old grandmother passed away. She filed a claim with Access America, which made some unusual requests, including asking her for a statement from her physician (“I didn’t go to the doctor,” she says, “I was perfectly healthy”). Then it turned her down. The reason: Her grandmother died of old age, which was a “preexisiting” condition. I followed up with the company, which insisted it made the right call. A spokesman said Stromquist’s grandmother was in hospice, and her death was expected. “How very frustrating,” Stromquist told me. “I suppose this is an expensive life lesson about travel insurance.”

It is. If stories like this make you wonder if your claim might be rejected, you’re not alone. One of the most common queries I get from readers about travel insurance is: Why bother? There’s no easy answer to that question.

That’s because there’s insurance and then there’s insurance. The policy you’ll find offered on cheap point-to-point flights covering accidents and dismemberment is like a lottery ticket. You have a one-in-a-million chance of being in a covered event, such as a plane crash. Then there’s gold-plated insurance, some of which has “cancel for any reason” features: They cost more and are supposed to cover more. Agnes Levy paid for one in advance of her Thailand tour this spring, just before political unrest broke out. When the State Department urged Americans to stay away, she decided to heed its warning. She might have received a voucher for a future trip under her policy offered through Trip Mate. As it turns out, she didn’t need it: Her tour operator agreed to reschedule her on a different tour.

Bear in mind that travel insurance may offer other potentially worthwhile benefits. These include medical evacuation or trip interruption coverage, which would pay your expenses if you’re grounded by an act of God (or nature). After last spring’s volcanic eruption in Iceland, insurance companies were eager to introduce me to customers they had helped. But some credit cards offer similar protections, and Europe’s EC No. 261 regulation mandates that airlines take care of stranded passengers. Some hotels also offered reduced rates for travelers who couldn’t get home. In these cases, insurance wasn’t so much a must-have as a back-up plan.

The old advice about insuring only what you can’t afford to lose still applies. But so do a few new rules. Just because insurance is offered on a travel product doesn’t mean you need it. Check out an impartial insurance site such as InsureMyTrip.com (www.insuremytrip.com) to compare rates and policies. Avoid buying insurance directly from your tour operator; it may not protect you if your outfitter goes belly-up. If you think there’s a chance you might need to make use of a policy—say you have a sick relative or a medical problem—review the policy with that in mind. Don’t buy more insurance than you need: Take an inventory of any other coverage, including that offered by your credit card, car insurance, medical insurance, and homeowners’ or rental insurance.

Truth is, we don’t need more travel insurance in an uncertain world. We need better insurance—and travelers who are better informed about it.