What insurance travelers need — and which to skip

Many Americans make their airline or hotel reservations online. Pick a flight; find a hotel room – but get to the end of the transaction, and you can't check out until and unless you opt in or opt out of travel insurance.

In the travel industry, travel insurance remains one of the most misunderstood, and some might say misleading, issues. 

Millions of Americans opted in back in 2019 and 2020 with the best of intentions, only to discover amid the pandemic that the insurance they bought was essentially worthless. Somewhere in the companies' policies — never revealed on the web page when travelers had to make a choice — was a paragraph that said the companies didn't cover pandemics.

That's millions and millions of dollars wasted by travelers — not just for the cost of the policies, but then being unable to get their money back on canceled flights or trips.

The two biggest types of insurance are trip cancellation and interruption insurance and medical evacuation and repatriation insurance. The former is what travelers are generally most familiar with. Theoretically, it's supposed to cover trips that are canceled or interrupted — so, if a flight is delayed, which makes a traveler miss a connection or cruise, or if you lose out on a few days at a hotel. Or, if severe weather crops up, such as a hurricane, that will affect the destination.

Typically this policy costs between 6-10% of the cost of your trip. But the devil is in the details, the fine print of each policy that most travelers never bother to read — and it's almost impossible to do it when purchasing travel online.

Policies typically have a number of exceptions and exclusions, such refusing to cover travelers older than 75 or those with pre-existing medical conditions. These policies might exclude travel to certain destinations, like North Korea or Syria. And they might not apply in certain weather-related situations — you can't buy a policy once a hurricane has officially been named, for example.

And of course, during the pandemic, there was the "pandemic clause."

Medical evacuation and repatriation insurance, in contrast, is — in theory — essential coverage every traveler should have in case they get sick or injured traveling. Most medical insurance policies do not cover you outside the U.S., so this type of travel insurance is especially important to have if you're traveling anywhere overseas.. 

The best policies pay for you to first  be medically stabilized at that location; the insurance company will then consult with your doctor  — who knows your medical history best. Based on that consultation, the insurance will fly you home — the evacuation and repatriation it's named for — to the medical facility and doctor of your choice. 

Most medical evacuation and repatriation policies are sold on an annual basis, and many have family plans. I've had my policy for more than 20 years, and while thankfully I've never had to use it, I'm very glad I carry it. A few years ago, I was in Egypt when an American tourist stupidly tried to climb the pyramids in Cairo. He fell and broke his hip. He had no insurance. 

He had to pay for five first-class seats on the flight back home: four to hold the stretcher, between two rows, and the fifth for the nurse that was required to fly with him. His airfare costs alone were $67,000.

If you're looking to purchase travel insurance, never buy it from the travel providers themselves such as  the airline or the cruise line. In many cases, the policy language with this insurance tends to be more beneficial to the travel provider in terms of exclusions and restrictions. 

This also means, never buy it online —  always opt out. Why? You don't know what you're covered for, and worse, you don't know what you're not covered for. Travelers can easily buy it from a travel agent or travel adviser, who can walk you through the hieroglyphics of the policy language to help you determine if you're actually covered. And if you buy the insurance from the travel provider and the travel provider goes out of business, in many cases, so does your insurance.

Be careful of travel insurance policies that allow you to cancel for any reason, known as CFAR. These policies are usually very expensive, and travelers won't get all their money back if they cancel. Before the pandemic, many policies would only refund about 75% of the traveler's investment. Now, a number of policies have cut that back to 50%. And some policies exclude any refunds for cancellations made 24-48 hours before the trip departure date.

But there have been some changes after the last two years that are good for travelers. There were so many complaints about trip cancellation and interruption travel insurance during the pandemic, that some insurance companies now provide policies that include epidemic coverage — it's now considered a covered expense under medical. 

And a number of insurance policies — including one from Allianz, the largest travel insurance company — now include coverage for quarantine if you test positive for COVID-19 while traveling. Travelers would be covered for their expenses under the "travel delay" provision. But not all policies offer this, and travelers need to check directly with these companies or with a travel agent or adviser to make sure the coverage language you need is specified in that particular policy.