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Trip-Cancellation Insurance: Useful, Not Foolproof
March 15, 1995 -- One question asked with increasing frequency these days is "Should I buy trip-interruption and trip-cancellation insurance?"
The categorical answer is yes, whenever you pay in advance for a costly cruise or a tour package.
Unfortunately, that's the only categorical answer about trip-cancellation and trip-interruption insurance (TCI). All the other questions you may ask about it--not to mention the questions you don't even know you should be asking--have convoluted, equivocal and sometimes conflicting answers.
"TCI is the most crucial purchase a traveler can make, but it's also the most difficult to understand," says Edmund Cocco, president of GlobalCare Insurance Services. "It's also the only travel insurance you can't get in any other form. It isn't offered by a credit card, and it isn't part of your homeowner's policy."
Although the following primer doesn't answer all questions or cover every contingency, here's what reasonably enlightened travelers should know about TCI.
WHAT YOUR TCI POLICY COVERS
Trip-cancellation insurance is designed to reimburse you for financial losses you incur when you are required to cancel a trip before departure or interrupt it somewhere along the way. But TCI will not reimburse you if you simply change your mind about traveling.
"TCI is about an event or illness you can't control that forces you to change your plans," explains Jenny Van Soelen, a spokesperson for Mutual of Omaha. "If you cancel a trip because you've thought better about going, that's not covered."
READING THE FINE PRINT
Virtually all TCI policies are effective in the case of sudden illness, injury or death--yours or a family member's. Also covered in most policies are cancellations due to a wide variety of "unforeseen" events: your house burns down, you are summoned for jury duty, you get a flat tire on the way to the airport and miss the flight or a travel supplier is crippled by an unannounced strike. But policies differ from company to company and you must read the fine print carefully. One notable oddity: losing your job is not considered a valid reason for canceling a trip and you would not be reimbursed.
A common area of misunderstanding is exclusions based on preexisting medical conditions. The exclusionary period can be as short as 30 days and as long as 180 days. Still more perplexing is the difference between "controlled" and "uncontrolled" preexisting conditions. Some policies will cover a preexisting condition if it has been successfully controlled by medication, while others will automatically exclude any condition that has required medical attention.
THE COST OF YOUR POLICY
Although prices naturally vary, expect to pay between $5 and $7 for every $100 worth of protection. In other words, if you buy a trip-cancellation policy worth $5,000, the one-time premium will cost $250—$350.
HOW MUCH PROTECTION TO BUY
At first glance, travelers who pay $5,000 in advance for a vacation might assume they need to buy $5,000 worth of TCI coverage. But that's not necessarily true. The determining factor is the amount of the investment you'll lose if the trip is canceled or interrupted. For example, if you are required to pay a 25 percent cancellation fee (or $1,250) but are promised a refund for the balance, you need buy TCI to cover only the $1,250 at risk. But many tour operators--and almost all cruise lines--prorate cancellation fees. The penalty gets larger as the departure date draws nearer. Within the last few weeks before a cruise departure, in fact, travelers will lose everything in the event of a cancellation. In these situations, Cocco suggests, "assess financial exposure by assuming [you] may have to cancel on the day of departure." If, for example, you book a $5,000 cruise, you could lose your total investment, so you should protect yourself by buying $5,000 worth of TCI.
WHERE TO BUY
Among the best-known names in the TCI field are Mutual of Omaha (800-228-9792), Access America (800-248-8300), the Travelers (800-243-3174), GlobalCare (800-821-2488), Travel Guard (800-826-1300) and Worldwide Assistance (800-821-2828). You can purchase TCI policies directly or through your own travel agent. Many tour operators and cruise lines also sell TCI. But while tour-operator or cruise-line policies are sometimes a bit cheaper than those offered by the insurance specialists, they are rarely better buys. You're generally better to buy your coverage from a third party rather than the provider of your travel.
Requests for reimbursement of canceled trips outnumber trip-interruption claims by a margin of about four to one, says Beth Godlin, senior vice president of Access America. But don't ignore the details of the interruption clauses. Be sure your policy pays for the full cost of a ticket should you have to make an unscheduled return home.
THE OPERATOR-FAILURE QUANDARY
What happens if your trip is canceled or interrupted because a tour operator or travel agent fails or an airline or cruise line collapses? That depends on the TCI policy and some financial semantics. Some policies cover "failure" or "default," while a few cover only "bankruptcy." Since an operator can cease operations without ever declaring bankruptcy, you should beware of policies that draw that legal distinction.
And be advised that every TCI policy examined by the Travel Adviser limited its coverage to "third party" failures. In other words, if you purchase a travel package directly from a tour operator and the operator fails to deliver, you are not covered. But book the very same travel package through your travel agent, and you are covered.
"It's illogical," admits Cocco. "Travelers buying TCI in good faith shouldn't be forced to make that kind of distinction."
A LAST WORD OF CAUTION
Don't be confused: TCI isn't a substitute for travel-medical or emergency-evacuation coverage. TCI policies reimburse you only for the cost of prepaid travel that is canceled or interrupted by a medical or other emergency. It provides no medical coverage in the case of illness or hospitalization either at home or abroad.
This column originally appeared in Travel Holiday magazine.
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