Here’s how to decide when travel insurance is worth it

My earliest memory of travel insurance was the life insurance vending machines that used to populate airports up until the early 1980s. For those too young to remember this bizarre part of 20th century air travel, these kiosks offered very short-term life insurance policies that cost $2.50 (paid in quarters) for coverage of up to $62,500.

Since these pre-travel policies were marketed to anxious flyers, it seemed clear the insurance companies were capitalizing on fear rather than offering a needed product.

Over the intervening decades, I never revised my opinion of travel insurance. I’ve been lucky enough to never need travel insurance, but my family’s recent trip to Denmark finally pushed me to rethink my assumptions.

Unfortunately, like any insurance product, it can be difficult to determine which are reasonable precautions and which ones are mostly designed to open your wallet and remove your cash. To better understand how travel insurance should fit into your vacation budget, we spoke to travel expert Lee Huffman of BaldThoughts.com.

Know what travel insurance covers

Travel insurance is a broad umbrella term that describes a number of different types of coverage. There are several aspects of traveling that you might need insurance to cover the cost of:

• Trip cancellation, interruption, or delay: This coverage refunds you the nonrefundable financial costs incurred when you have to cancel or reschedule a trip for a covered reason, including illness, job loss, or flight delay. With over 21% of year-to-date flight departures delayed and 1.47% of flights cancelled, trip cancellation, interruption, or delay is the most common hazard facing travelers.
• Medical care: While many U.S. medical insurers cover policyholders overseas, Medicare does not. And even if you do have a policy that works abroad, there are typically a number of coverage gaps. Travel medical insurance will ensure you have coverage for medical care if you fall ill on vacation.
• Emergency evacuation: If appropriate medical care isn’t available in your destination, this kind of insurance will cover the cost of getting you somewhere you can get the care you need. Emergency evacuation is not typically covered by any other common health insurance, although some credit cards include this coverage as part of their travel protection.
• Baggage loss or damage: While your homeowners insurance will typically cover your belongings wherever you travel, baggage insurance can help by paying your deductibles and covering any excluded items.

Know your biggest risks

If the list of travel insurance coverage options reads like Clark Griswold’s nightmare vacation scenario, how exactly does one determine what to insure against?

The good news is that you don’t generally need to insure your entire trip. “The overall cost of your trip may be $10,000, but you can actually whittle down your costs,” Huffman says. “You can customize your travel insurance based on what your risks are.”

In other words, not every travel payment is equally at risk. Travelers are often protected via their credit cards and merchant cancellation policies for the two largest travel expenses: airfare and lodging.

“If you book with a credit card that has travel protections, then that will cover you, whether you pay with dollars, miles, or points,” Huffman says. “And the price difference between a refundable and non-refundable hotel room generally isn’t that much of a benefit these days. If you make a refundable hotel reservation, you can usually cancel up to a few days before.”

It’s the big, non-refundable vacation expenses, such as resorts, cruises, or tours, that may require insurance. “If you’re going down to see the penguins in Antarctica on a non-refundable ticket,” Huffman says, “then it makes sense to invest in travel insurance that covers cancellation rather than relying on protections included with your credit card.”

Know your coverage gaps

Just because your largest travel expenses can be covered by your credit card and the hotel’s cancellation policy doesn’t mean they will be covered.

In terms of air travel, credit card travel protections only kick in if your trip is affected by airline delays or cancellations. You can’t count on your credit card if you’re the reason for cancelling.

“If you think you may need to cancel your trip for some reason–maybe you have a sick parent–that’s when you’d need travel insurance,” Huffman explains.

Similarly, a hotel that advertises a “Flexible Cancellation” booking option doesn’t necessarily offer you a full refund if you need to cancel–and they may only allow you to cancel within a specific time frame.

This is why it’s important to know exactly what kind of travel protections your credit card offers and why you should read the cancellation policy when you book your hotel. That way, if you do need to purchase travel insurance, “you can get better coverage–because you’re not insuring things that you don’t need to insure and you’re getting more robust coverage where there are gaps,” Huffman says.

Travel smart

Travel insurance coverage is designed to protect you from several common travel hazards, including trip cancellation, medical care, emergency evacuation, and baggage loss or damage. But many Americans may already have some coverage for these hazards through their credit cards, health insurance, homeowners or renters insurance, and through merchant cancellation policies.

You probably want to consider travel insurance for big-ticket, nonrefundable trips, such as all-inclusive cruises, since those are the types of travel plans least likely to be covered by other means. You may also need travel insurance if you suspect you might need to cancel a trip because of illness or potential job instability, since your credit card will only cover flight cancellations or delays caused by the airline.

But it’s important to look at your trip as individual purchases to see what you need to protect, rather than assume you must insure the entire cost.

“Just like any other type of insurance, think about why you’re buying it,” Huffman says. “What are you worried about? Figure out your exposure and match the product to what you’re looking to cover.”

But if you’re tempted to buy a policy from a vending machine, just keep walking.