Fake travel insurance? 6 questions to ask before buying a policy

George Fredrickson never suspected the travel insurance he bought for his transatlantic cruise last year was fake.

When he paid nearly $8,000 for a Christmastime sailing on the MSC Orchestra through Sarasota, Fla.-based Legendary Journeys, an agent also sold him a $432 policy from a company called Traveler Protection Services. It would reimburse him if he had to cancel his vacation, he was promised.

But after Fredrickson’s wife needed spinal fusion surgery late last year and her doctor advised her to stay home, he learned the truth: Not only was his policy an unlicensed and illegal insurance product, but within weeks of filing a claim, Traveler Protection Services and several related companies had gone out of business. His vacation appeared to be lost.

To describe Fredrickson as upset would probably be an understatement. He’s filed a formal complaint with the state of Florida. He’s also contacted an attorney and hopes to start a class-action lawsuit against the travel agency and insurance company. “I think both of them should be held liable,” says the Davenport, Fla., retiree.

There are no statistics on the number of phony insurance policies sold to travelers. But in the last month, since the apparent bankruptcy of Arvada, Colo.-based Traveler Protection Services, Prime Travel Protection and a related company called Universal Assurance Group, there’s been a dramatic uptick in the number of insurance-related complaints I’ve received. At least two states — Florida and Colorado — are investigating the companies, as well as a network of hundreds of travel agents who sold the policies.

Earlier this month, Florida warned three travel agencies, including Legendary Journeys, that Prime Travel Protection’s policies may violate state law. And the plot thickened just last week, when it was reported that some of the agencies had a track record of selling these questionable insurance products.

Legendary Journeys insists it didn’t know the insurance it sold Fredrickson was unlicensed and says when it found out, it stopped offering it. “As far as we were told by them, [they were] licensed to sell travel in Florida and all 50 states,” says Stew Carrier, a customer service specialist and group tour coordinator. “Legendary Journeys is not in the insurance business and we only act as the intermediary for the insurance provider,” he adds.

In a letter sent to policyholders in late February from a trustee claiming to represent the three bankrupt insurance companies, holders of approved claims were assured that they’d be paid to “the greatest possible extent” over the next three years.

But some people familiar with the companies are incredulous. They believe the defunct insurance carriers are trying to buy time — time that its mostly elderly customers don’t have. And enough time to do what they claim these insurance companies have been doing for several years: to move to another state, morph into a new company and start selling unlicensed insurance through the same network of travel agents whose loyalty it buys with generous signing bonuses and too-good-to-be-true commissions.

Barry Resnick, a college professor from Orange, Calif., whose mother lost her vacation after buying an unlicensed policy a few years ago, now tracks companies that offer fake travel insurance. He says Traveler Protection Services is just the latest in a string of bogus travel insurance companies. “The perpetrator lines up a ring of travel agents, promising commissions up to four times what a legitimate insurance company would pay,” he says. “The product is masked to look like real insurance, promising compensation for specific potential future losses, in exchange for a payment.”

And then it’s marketed to retirees who are looking for an affordable insurance policy and who lack the resources to sue the fake insurance company or travel agent when a claim isn’t paid. In short, says Resnick, they’re the perfect victims who have allowed the fake insurance companies and their surrogates to get away with the perfect crime — at least until now. “A lot of the agents selling these policies are repeat offenders, waiting for the next new company to offer the same illegal product,” he says.

I asked Jerry Watson, a principal for the travel insurance companies in question, about the allegations made against his companies and several other now-defunct businesses he worked with that sold travel protection policies. Watson told me his policies were a “benefit services contract” — not insurance — and that he clearly represented them as such. “I ceased operations when I realized that there was no way that we could continue to pay claims based on the incoming revenues,” he says, adding, “I have no plans to leave Colorado and I do not have any intentions of operating any type of travel protection company.” You can see the full text of our interview here.

Insurance or not, how do you avoid buying a policy that can’t — or won’t — cover you? Here are six questions to ask before signing on the dotted line.

1. What do they call it?
The name of the plan can be a giveaway. Is it a “protection” plan or a “travel insurance” plan? There’s an important difference. Insurance is regulated by your state, according to Steve Dasseos, president of TripInsuranceStore.com. Trip protection isn’t. A clever travel agent may refer to a protection policy as “insurance” but the contract will tell you otherwise. “The phrase ‘travel insurance’ is tossed around, making it sound like every type of protection plan is a real insurance plan,” he says. It isn’t.

2. Is it backed by a legitimate underwriter?
Real travel insurance companies are backed by one or more regulated underwriters that are insured and financially healthy, says Bob Chambers, the director of operations for CSA Travel Protection. “Check the A.M. Best Web site to see current ratings for a provider.” (A.M. Best is a worldwide insurance rating and information agency, and any reputable travel insurance underwriter will be rated by it. If it’s not, walk away.) Also, check the U.S. Travel Insurance Association Web site to see if the company is a member. USTIA has strict legal and ethical standards of conduct.

3. Have you shopped around?
Don’t take the first policy that’s offered. And that’s particularly true of the one-click come-ons that you’ll find when you book a trip online. Instead, take the time to thoroughly review your options and consult with someone you trust. “In my opinion, it is always best to work with a travel professional — and you should seek and respect that person’s opinion,” says Guido Adelfio, president of Bethesda Travel Center, a travel agency in Bethesda, Md. In other words, do your due diligence on the agent you’re working with, too.

4. Is it being sold by a licensed agent?
It isn’t just important for your insurance policy to be legitimate, but also your travel agent. “If you’re unsure about the agent you’re working with, stop before signing any paperwork or writing a check,” says Michael McRaith, the property and casualty committee chairman for the National Association of Insurance Commissioners. “Call your state insurance department, which is easily reached by phone, and confirm the agent is legitimate and licensed to do business in your state.” You can get more information on reaching your state insurance commissioner at the NAIC Web site.

5. Did you read the policy?
Review the policy carefully before you buy. Don’t take someone else’s word for what’s in it. When it’s time to make a claim, verbal promises are meaningless. “Most travel insurance policies provide a grace period during which you can review and return for a refund if you choose to cancel the policy,” says Bradley Finkle, past president of the U.S. Travel Insurance Association. “If you have questions, travel insurance companies typically offer a customer service number to help answer questions.”

6. Are you aware of any tricky clauses?
Even if your license is backed by a quality underwriter and checks out, it may still be worthless to you. Why? Because of the clauses in your contract that are easily glossed over when you’re buying. The biggest snag is for pre-existing medical conditions. “If you have a pre-existing condition or health problem of any sort, make sure the policy covers you for that condition,” says John Wagner, the director of products and services management for Blue Cross Blue Shield of Florida. “No insurance policy will cover you for all possible events and eventualities,” he adds.

What if it’s too late and you’re stuck with a fake policy? You have a few options. Mark Cipolletti, a vice president at insurance provider Mondial Assistance, says you should contact authorities immediately. “Call the Department of Insurance in your home state to report the problem,” he says.

If you bought your policy through an agent, report it to the appropriate state regulatory agency. Let the Federal Trade Commission know about your problem, too. You can file a report online, by e-mailing crcmessages@ftc.gov or by phoning (877) FTC-HELP.

A dispute of your credit card charges or a trip to small claims court could help recover some or all of your money, but that’s not an ideal solution.

“It is much better to check everything up front than to try to untangle problems after the fact,” says Bill Hardy, director of AAA Insurance Services.

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