As a financial advisor I spend a lot of my time talking with clients about avoidable risk. For most people, insurance is one of the first lines of defense to protect against possible financial loss. We carefully enter into contracts that protect our lives against financial risks — both unforeseen and unavoidable. These days you can insure anything from wedding rings to your golden retriever. So, the idea of adding yet another insurance policy can seem like a bother. But there is another type of financial risk we don’t often think about — the possibility of ruined travel plans.
Recently, I sat down with travel insurance expert, Vicky Malakoff, who — aside from being my lovely wife — is the owner of Destination Uncharted, a Bend-base luxury travel advisor. Vicky answered my questions about whether travel insurance is worth the hype.
Q: Can you give me a big picture explanation of travel insurance?
A: Well to start, there are basically two different categories of travel insurance.
- Pre-trip cancellation protects your investment in your trip (this is the expensive part of your policy). If you have to cancel your trip before it even begins, the coverage ensures you get a full refund on what you’ve already spent.
- Post-departure insurance covers you for the many things that can go wrong while you’re traveling — medical emergencies, missed connections, lost luggage etc.
Q: Who should purchase travel insurance?
A: The short answer is everyone who has paid for pre-trip costs. But generally, it depends on the destination and what’s important to the traveler. For those who travel internationally or know their way around a cruise ship, it could be a smart move. Trips like this often require big upfront costs that you want to protect.
But if you’re taking a low-cost domestic trip where you can recover costs directly, you may want to think again. For example, if you book a hotel that doesn’t require payment until checkout, then there’s no need to insure that amount. The same advice applies to flights. These days most airlines issue a credit for a future date if you have to cancel. Though if you don’t travel much you may want to consider insuring the cost of the flights too.
Q: What about emergency medical coverage?
A: Typically, once you step outside the United States your health insurance policy won’t cover you. Travel insurance covers emergency medical treatments while abroad, but also emergency medical evacuation. The latter has the potential to cost tens of thousands of dollars, so having that coverage in place is well worth the cost. Be mindful of the amount of coverage your policy allows for medical emergencies. While medical treatment in other countries is often cheaper than at home, you want a policy with at least $50,000 in medical coverage.
*Pro tip: Ask if the insurance company will make direct payments to the hospital. You want to avoid paying out of pocket and waiting for months to be reimbursed.
Q: Should people who travel often buy an annual travel insurance policy?
A: Annual policies can be a game changer for frequent international travelers that don’t require high levels of coverage. These polices can be found cheap but be aware they provide very limited cancellation coverage and some only pay out one claim a year.
Q: Is “cancel for any reason” (CFAR) coverage worth it?
A: It’s a bit of a personal preference. The deal is that most travel insurance policies will pay out claims for a covered reason. These are listed in detail in the policy’s fine print, but usually extend to circumstances personal to the traveler, e.g. someone gets sick, a housefire, or their boss cancels their vacation. But if systemic risks arise like we saw during the pandemic and recent natural disasters, you might be out of luck. That’s where CFAR policies come in. Whether your dog runs off the night before your trip or you get into an argument with your travel partner — you’re covered.
However, it’s important to understand what you’re getting for your money. CFAR premiums can be up to 60% higher than a regular policy. If you file a claim for an uncovered reason, you can expect to only get between 50-80% of your trip cost reimbursed. These policies also usually have to be purchased within two weeks of making the first payment on the trip, and you have to insure all parts of the trip, otherwise you may find your claim is denied. Travelers may do the math and decide that the extra cost of a CFAR policy outweighs its benefits.
Q: Can you share any stories about travel insurance paying off in a big way?
A: Yes! Just recently, one of my clients had to cancel her Safari vacation due to a last-minute illness. She filed a clam and is expecting a $5,100 insurance check. That’s 100% of her prepaid non-refundable costs. Her travel insurance premium for the trip? Just $480, meaning she’s getting a more than 10x return on the cost of insurance.
Bottom line — think of your vacation as an investment. Ask yourself if you’d be willing to risk what you’ve spent on the trip. If the thought of potentially losing money on a ruined vacation is holding you back from travel, then consider the insurance. Life is short — take the trip and enjoy a well-deserved vacation.
Looking for answers to similar financial questions? Send me an email about what’s on your mind and I’ll do my best to share some insight in a future column. And if you’re looking for a team to help you make financial decisions or just get some clarity on where you’re going next — let’s talk.
Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Bend Wealth Advisors is not a registered broker/dealer and is independent of Raymond James Financial Services.
Securities offered through Raymond James Financial Services, Inc., member FINRA / SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Bend Wealth Advisors is not a registered broker/dealer and is independent of Raymond James Financial Services. Any opinions are those of Stuart Malakoff and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. You should discuss any tax or legal matters with the appropriate professional.
