The Extra Mile

Hoping for the Best, Preparing for the Worst

Insurance can mitigate risks of travel, but only partially

July 5, 2005 - For most of the jet age, travel has been a pretty risk-free undertaking. With the exception of a few thrill seekers strapped into creaky DC-3s, white-knuckling it onto bumpy runways in the most inhospitable corners of the world, travelers' worst fears were of flight delays and unfriendly bacteria lurking in other countries' street food.

But over the past five years, travel risks, and travel anxiety, have skyrocketed.

On the health front, travelers have been panicked by SARS, avian bird flu, and deep-vein thrombosis -- the first two associated with travel to specific regions of the world, the last associated with air travel generally.

As 9/11 and the Madrid train bombings made all too apparent, the threat of terrorism is no longer confined to a handful of countries halfway around the globe. Today, there is no place in the world where personal safety can be assumed.

And to an extent unprecedented in the history of commercial aviation, the threats of labor walk-outs and airline liquidation have become seemingly permanent fixtures of the travel landscape.

So in addition to the traditional disruptions caused by mechanical breakdowns and severe weather, travelers now face the prospects of illness on the road, flight cancellations due to strikes and political turmoil, and the sudden disappearance of entire airlines. Airline tickets, hotel bookings, travelers' health and safety, frequent flyer miles: everything is at risk.

Wherever danger and uncertainty arise, insurance is sure to follow. And so it is with travel insurance.

The U.S. Travel Insurance Association, a trade group representing travel insurance providers, reports that 17 million Americans spent more than $1 billion on travel insurance in 2004. According to Jonathan Ansell, the Association's president, "The UStiA estimates that 30 percent of leisure travelers taking cruises, air/tour vacations and international trips bought travel insurance in 2004. This is a significant increase from the estimated 8 to 10 percent of travelers buying travel insurance before 9/11."

Travel insurance policies are generally sold as "packages," typically including coverage for trip delay, cancellation or interruption, airline financial default, terrorism, lost or damaged baggage, medical emergencies, etc.

In some cases, policies may also be purchased on an a la carte basis for medical and accidental death.

Unless a policy expressly states otherwise, travel insurance does not cover disruptions due to "named events."

To use the example of a hurricane, a policy purchased during the period when the National Weather Service (NWS) considered the weather event a storm or a tropical depression would still provide coverage if it subsequently grew to hurricane proportions and ultimately resulted in a trip's being delayed or canceled. But as soon as the NWS deems that storm a hurricane, it becomes a named event and any coverage obtained thereafter would not cover related disruptions.

The same principle applies to labor actions, although when a strike becomes a named event is much less clear, since there's no central authority like the NWS to make an official determination.

The underlying logic is that insurance is protection against the unexpected. But a named event, by definition, is expected and so lies outside the scope of a policy's coverage.

Travel insurance for frequent flyer miles is no longer an option.

Until March 2003, frequent flyer program members could insure their miles, and their award trips, through PrivilegeFlyer, a package of services for frequent travelers which included AwardGuard insurance. For $119 a year, AwardGuard insured up to $7,500 worth of award tickets, affording policy holders a welcome measure of protection against the very real possibility of losing miles to bankruptcy.

But PrivilegeFlyer was forced to suspend AwardGuard, citing the unwillingness of insurers and reinsurers to assume the increased risk posed by an airline industry in crisis.

Traditional travel insurance companies do not cover the loss of frequent flyer miles or the cancellation of award flights. But award travelers can still purchase trip interruption insurance sufficient to cover the cost of a ticket home, plus the cost of any unused, non-refundable land arrangements that might be forfeited in the event a trip is cut short. (One company, Travel Insured, offers policies which will reimburse travelers for the processing fee imposed by airlines or hotels to return miles to the member's loyalty-program account in the event an award trip is cancelled.)

Package policies are priced according to the traveler's age and the cost of the insured trip. As a rule of thumb, insurance for travelers aged 40 or younger is priced at approximately 5 percent of the cost of the trip; for those 70 or older, the price doubles, to around 10 percent of the trip's cost. (Older travelers pay more because they face a higher risk of illness or death.)

The Internet has made comparing the coverage and prices of available plans a snap. Websites such as Squaremouth.com, InsureMyTrip.com and TotalTravelInsurance.com allow quick and easy comparisons between plans offered by major insurance issuers.

Offline, travel agents are generally the best source for travel insurance information and recommendations.