The Case for Travel Insurance

Travel insurance doesn't cost much, typically about 5% of the amount of your trip. But when you're booking a vacation and have to decide, be sure you know what you're getting before you check the yes box.

The most basic coverage -- the kind that you get with an airline policy -- is for trip cancellation or interruption. It covers nonrefundable, prepaid costs if you have to cancel or interrupt your trip because of a hospitalization, death of a family member, jury-duty summons or subpoena to appear in court, layoff at work, or some other event beyond your control, such as a natural disaster or terror attack. Travel delays and baggage delays are usually included in the basic coverage.

If you're just buying a couple of plane tickets, you might decide to skip paying the extra $25 or so for insurance. But for more-expensive trips, such as cruises and tour packages, the peace of mind may be worth the extra money.

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Reasons to buy

Your biggest risk is a major illness while you're away. U.S. health insurance usually isn't accepted abroad. An emergency evacuation, which can cost tens of thousands of dollars, probably won't be covered, either. Even if your health policy does offer coverage, you may have to pay for care upfront and try to get reimbursed when you're back in the U.S.

To get medical coverage wrapped in with travel insurance, look for a package policy sold directly by a travel-insurance company (you can compare policies at InsureMyTrip.com, which represents 22 insurers). Packages that include trip-cancellation insurance and medical benefits are the most popular, says Peter Evans, executive vice-president at InsureMyTrip.com, but you can also buy just medical coverage or evacuation coverage.

Package policies run 4% to 8% of your total trip cost, depending on your age (older travelers are more likely to cancel a trip for health reasons or to use their medical coverage) and time spent traveling. Health policies start at about $8 per trip. But evacuation-only policies can be pricey. For example, a policy for a 45-year-old traveling for two weeks runs $50 to $90. In general, when you buy coverage, you have ten to 15 days to get a refund if you change your mind.

What's not covered

Making a claim can be a hassle. In case of illness or hospitalization, a doctor's note is usually required. If your baggage was delayed, you'll need proof from the airline and any receipts for necessities (think toiletries, not a new cashmere sweater) you purchased to cover you until your bags arrived. Keep your policy with you on your travels so that you can refer to important procedures buried in the fine print. And always keep all receipts, advises Evans.

Generally, you can't get your money back if your boss tells you to cancel your vacation or if you become ill -- unless you're hospitalized or a doctor nixes your trip. You may be able to add a costly rider to allow cancellation for any reason; you will typically be reimbursed for 75% of your prepaid costs, but you must still cancel at least two days in advance to get a refund.

Exclusions usually include acts of war, foreseen events (you can't buy insurance to cover a hurricane at your destination after one has been predicted) and actions over which you had control (such as injuring yourself while intoxicated). In some cases, you can buy riders to cover risky activities, such as mountain climbing, bungee jumping and even scuba diving. But otherwise, if you hurt yourself while doing extreme sports on vacation, you're out of luck.