Is Buying Travel Insurance Worthwhile?

Many of us pay for all kinds of insurance. There’s life, auto, homeowner’s, flood, earthquake, renter’s, long-term care, and of course what politicians are fighting over, health insurance.

If you gamble, you can even get insurance against the dealer having a blackjack. It’s generally considered a bad bet.

Insurance bears some resemblance to betting, although insurance companies allot millions of dollars to determine the odds. With life insurance, you are betting that you might die during the term of the policy. The insurance company is betting you’ll make it through without your heirs collecting.



As with life insurance, perhaps the biggest reason to buy travel insurance is the peace of mind argument. If you are stranded, your luggage disappears or you need medical evacuation, it’s a small price to pay.

Is buying travel insurance a good bet? How much do you need? And what kind? As with other kinds of insurance products, the answer is: it depends.

While travel insurance is a growing category, many people are put off by what they consider to be high costs and an even higher confusion factor. Does my credit card provide travel insurance? What kind? Should I buy travel insurance though a travel supplier like an airline, or direct? Through a travel insurance company, insurance aggregators like Squaremouth.com or TravelInsurance.com, a travel professional or insurance agent?

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The way travel insurance is sold is reminiscent of a George Bernard Shaw line, “Every profession is a conspiracy against the layman.”

There are essentially six types of travel insurance coverages, according to the research firm Ibisworld. These include Cancellation, Delay, Trip interruption, Emergency medical, Personal effects (like delay or loss of your luggage), and the ever-popular Accidental death. Of course, one policy could include most or all of these coverages.

According to Adroit Market Research, the global travel insurance market reached $18.9 billion in 2017. That’s projected to nearly double to $35.1 billion by 2025, with a CAGR of 7.9%. As the research firm darkly noted, unusual events and incidents like the 2015 Paris terrorist attack, Nepal earthquake and Ebola epidemic caused a surge in the use of travel insurance policies. And in travel insurance as in seemingly everything else, medical costs leads the way. Insurance for medical expenses alone is expected to account for $10.8 billion of the travel insurance market by 2025.

While $18.9 billion spent on travel insurance is certainly a sizable number, Oxford Economics says the total value of global travel in 2017 was $5.2 trillion dollars, or more than 250 times the spending on travel insurance. While the numbers may not be directly comparable, it does imply that many, perhaps most, travelers are not buying travel insurance.

The reason, of course, is cost. Travel insurance can easily add 10% or more to the cost of a trip.

And clearly, not every trip requires travel insurance. If I’m finally going on that unfortunately-named “bucket list” grand tour of Australia, you’d better believe I’m buying travel insurance for that $10,000 journey. On the other hand, if I’m delayed or my bags disappear on a $99 flight to San Francisco, I’ll just fight it out with the airline.

For example, I recently priced a potential trip to Las Vegas from Burbank in January 2020. The cost of the flight and three nights at the 3-star D Hotel was $505.

The insurance the travel supplier, Southwest Airlines, offered sounded good. You could cancel for any reason for a full refund, less the cost of flights and the insurance. (This is pretty standard with travel insurance; even if you collect, the insurer still keeps the money you paid for the insurance.) Not getting compensated for the flights isn’t as bad as it sounds, as you will instead be issued an airline credit for the amount valid for future travel.

The package also has no supplier cancellation penalties and includes a hurricane travel credit (unlikely to be important flying over the Mojave Desert) and reimbursement for trip or baggage delays as well as for emergency medical expenses.

Sign me up, I said. That is, until I looked at the price of $60.90, or about 12% of my trip costs. No thanks; I’ll take my chances.

On the other hand, travel insurance came in handy when a hurricane threatened Hawaii just before we were to fly to Kauai. We used our travel insurance to cancel flights for four and a rental condominium (about $5000). We got everything back but the travel insurance cost (about $400).

Considering who buys higher-cost trips, it’s no surprise that an IBISWorld study says individuals aged 50 and older purchase the most travel insurance, primarily for international journeys.

Will younger people, planning bigger-ticket trips and concerned by issues like the failure of low-cost airlines, start purchasing travel insurance? If the price is right and the language easy to understand, the answer is yes.

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