Do you really need travel insurance?

The come-ons for insurance are constant and often compelling when you travel. They start the moment you click on a booking site and sometimes don’t end until you disembark.

Want to insure your airline ticket? Your cruise? How about your luggage, pets or rental skis? Take a look around: There’s almost nothing that can’t be insured.

No surprise that travel insurance is a billion-dollar-a-year business. The industry has recorded steady year-over-year sales increases since 9/11, according to the U.S. Travel Insurance Association, a trade group.

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But is insurance worth it? That depends.

If you’re Adam Creighton, yes. He purchased travel insurance before leaving for Colombia, where he was building homes for a nonprofit organization.

“I was robbed while I was there,” says Creighton, who works for a technology company in Cottage Grove, Ore. “I reported what was stolen — a small gold ring valued at around $250 — and turned in the police report to my travel insurance company along with a receipt for the ring.”

The receipt was written in Korean. The travel insurance company translated it, calculated the exchange value of the new ring and promptly cut him a check.

“It taught me to always buy traveler insurance when traveling abroad,” he says.

But, then, if you’re Anne Krivicich, travel insurance isn’t worth it.

She’d planned a once-in-a-lifetime cruise on the Ruby Princess with her husband, Ron. Their 49-day sailing started in Fort Lauderdale, Fla., wound around Cape Horn and then headed north, concluding in Los Angeles.

But the Krivicichs never took their dream vacation. Ron Krivicich needed spinal surgery, and even though the couple bought insurance through a company that partnered with the cruise line, they faced a steep loss. Every penny of their $12,133 was about to go down the metaphorical drain.

Why? Turns out Ron Krivicich’s medical condition was preexisting, so a refund was out of the question. Anne Krivicich said she’d asked Princess about Ron’s back problems.

“We were assured that we could cancel for preexisting medical conditions and receive a full refund, minus the cost of the insurance,” she says.

I contacted Princess on behalf of the couple. A cruise line representative called Anne Krivicich and offered two options: She could either rebook her cruise within a year or she could receive a transferable voucher through her insurance, good for a future Princess sailing. She says it’s unlikely the couple will be able to use either offer.

“On average, most insurance is technically a bad deal,” says Jonathan Wu, the founder of ValuePenguin.com, an insurance review site. That’s particularly true of travel insurance, he says. And he has the numbers to prove it.

Wu reviewed the public filings for travel insurance companies and found that many pay a little over half of their premiums toward claims. The rest of the money goes to commissions, administrative costs, taxes and a profit margin. One filing, which Wu found eye-opening, disclosed that 25 percent of a premium goes to commissions.

In other words, one quarter of every dollar spent got kicked back to a travel agent or Web site selling the policy.

“It’s no surprise why these types of products are actively marketed at the point of sale,” he says.

Those who sell insurance see it differently. Bobbie Rae Murphy, a travel agent who specializes in cruise and adventure travel in Maineville, Ohio, says insurance commissions represent a significant portion of her income — about 5 to 7 percent. But she views insurance as a win-win proposition: a source of revenue for her and a valuable product that can save someone’s vacation, if not their life savings.

“Accidents happen,” she says, “and they can bankrupt you. I counsel my clients so they can understand the potential for issues, then suggest that for just a small amount of money, I can give them peace of mind.”

But not all insurance is created equal. Like many well-traveled industry colleagues (including me), Murphy buys an annual plan for herself. Those plans often cover the essentials, including hospitalization, medical evacuation, trip interruptions and car rentals.

Prospective travelers encounter other types of “insurance” that are probably not worth the trouble. Those can include policies on rental equipment like skis, or rental-car insurance that covers more than damage to the vehicle.

“For ski rentals, for instance, the most you can lose is the replacement cost of the skis, which may run a few hundred dollars at most,” says Wu. “Under these circumstances, consumers probably aren’t getting much value out of insurance, as it’s less likely that the risks will cause financial ruin.”

Bottom line? A lot of the insurance you’re offered while you’re traveling — if not most of it — is unnecessary. That’s the conclusion of Jonathan Stein, a former insurance adjuster and a consumer law attorney based in Elk Grove, Calif.

“I think most insurance sold to people when they are traveling isn’t very helpful,” he says. “When you do the math, it ends up being an outrageous premium for very little coverage.”

To some observers, the proliferation of insurance products begs for smarter government regulation, if such a thing is possible. After all, there are too many stories of unnecessary policies being pushed on uninformed travelers, not to mention the policies that should have worked but didn’t because of a “gotcha” clause.

Until then, here’s yet another thing to remember when you’re on the road: Just because someone offers you insurance, and tells you that you need it, doesn’t mean you have to buy it. Do you really need travel insurance?

This article originally appeared April 30, 2015.

12 thoughts on “Do you really need travel insurance?

  1. I think there are two reasons to buy travel insurance: the cost of the trip is a greater loss than one can prudently afford to take and/or one would not be covered for medical care by their present medical insurance (including Medicare if going outside the USA). However, I would not buy insurance from the travel provider or travel agent: there are several well regarded Web sites which provide direct comparisons between issuers and their several policies and that research can pay off through buying more precisely what one needs (and sometimes at lower cost). I personally buy my travel insurance through a partnership with USAA, knowing that if I have any issues, both the dedicated staff at the insurance company and USAA will be there to help me.

    1. Stuart, exactly! Insurance is always ‘a bet against yourself’, and the low dollar insure-your-refrigerator kind of policies are almost always losers from the financial standpoint. For travel, your suggestion to buy from 3rd parties is spot on. These companies have to compete with each other, whereas the cruise line kinda policy is ‘insurance-light’, and mostly just another profit center for the love boat companies.

    2. My agency offers several policies, especially TravelGuard – and I ensure they are PROPERLY and covered in a TIMELY manner, so they do not lose anything on thier trip. I also handle the claim, paperwork, followup etc when they DO need to file. So not only are they getting thier best option, but a lot more service than DIY.

  2. Every day you have stories on this site that wouldn’t exist had the petitioner simply bought travel insurance within 14-21 days of their first deposit. Almost every time you advocate, it is for an exception of a rule that could’ve been sidestepped completely had they spent that extra 5-10%. Do you need travel insurance? The answer is almost always YES.

    I’m a travel agent since 1991, my agency opened in 1979. The horror stories we have seen, everything from lost luggage on 30+ day trips to life-threatening illness that required immediate surgery overseas to having clients aboard the Costa Concordia – travel insurance plus a good travel agent are like having an angel and a fairy godmother on your side when the stuff hits the fan.

    Of COURSE insurance isn’t a good investment. It is to PROTECT your investment.

    1. Thank you, yes. This is my reaction to many of the stories. My only concern is what type of insurance. Several years ago we purchased insurance with our booking from Allianz. We had to make changes quickly since an elderly parent was hospitalized and passed away. The insurance cost $77 and we were reimbursed for the full $600 that we submitted. But we are now planning a Baltic cruise for the summer. A lot can happen until then, so I want to make sure that everything will be covered.

  3. I am totally with Stuart. I am on medicare so I have to have insurance if I travel overseas otherwise I have no coverage at all. I also have insurance through the partnership with USAA and they have paid me twice. One involved a lot of paperwork but they ended up paying me everything including the postage to the Vietnamese Embassy for my visa. The 2nd time when I had to change a flight because my Galapagos boat had an accident (prior to my trip) and I was placed on a different ship, They paid me within two weeks. They are very clear that you have to have coverage for at least the total value of your trip, even if you aren’t planning to claim some piece. I always make sure I have enough coverage and update my coverage if i do add ons to the trip. With this insurance, as long as you pay for insurance with a prescribed time of booking your first ticket, even if it is with frequent flyer miles, because you pay taxes on that, then preexisting conditions are included.

  4. At the very least, you almost certainly MUST have medical and med-evac coverage when traveling, especially to places without adequate medical facilities. If you do not have medevac coverage, and you are in a place without adequate medical care, and you cannot afford the evacuation, you are going to die. It’s that simple.

    On insurance in general: Yes, the insurance companies make a profit off their policies. That does not make insurance a “bad deal” for consumers as long as said consumers are protecting themselves from a risk they would prefer not to bear. Yes, insurance to, say, “protect” you from losing your fare on a $100 flight is silly. But for something more substantial? Well, I think the general rule should be: If you are going to write into Chris trying to get your money back for something that would have been covered, you should probably buy insurance.

    But all insurance has limitations, and you should be familiar with a policy before you buy it: the polices are generally written pretty clearly. (That said: Assuming the woman on Princess WAS told she could receive a full refund for a pre-ex (despite the wording of the policy, which says otherwise), Princess should have paid up; a lawsuit may be justified there if Princess admits to the mistake and/or has a recording of the call… the amount is high enough.)

  5. TWO GREAT POINTS!
    I insured our anniversary cruise with a third party, and we were covered from the day we drove out for 1,200 mile drive to catch the ship and all the way home. It was about 3.5% of the cost of the trip.
    The important part to me was being relaxed, knowing we didn’t stand to loose the whole trip from some stupid thing that happened between home an returning home and it covered the risks of medical emergencies beyond out own coverage.

  6. One thing I have never understood is why the travel providers offer such terrible insurance? Yes, I know it is a high profit item. But, is it really? The cost is usually around 5% of the trip cost. Even if the profit was like 50%, we’re talking 2.5% extra profit on the trip. I’m sure they could be selling better insurance with preexisting condition waivers for only a slightly smaller profit margin and have a lot fewer disgruntled customers like the Krivicich’s.

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