Is it smart to buy travel insurance? We tell you when it is

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by Russ Wiles, Arizona Republic

Lynn Williams appreciates the benefits of travel insurance. On the eve of a three-week trip to New Zealand and Australia several years ago, the Phoenix woman started feeling pain in her midsection.

"I drove down to the emergency room to find out what was going on," she said. "I wound up staying at the hospital for the next 10 days."

Williams had to cancel her vacation when doctors spotted a suspicious growth that required surgery to remove.

While the medical emergency ruined her vacation, it didn't ruin her finances. Because Williams had purchased travel insurance, she recouped the several thousand dollars she paid for air travel, hotel rooms, a cruise and more.

"I got back every penny," said Williams, whose growth turned out to be benign. She calls her travel-insurance investment "the best $240 I ever spent."

More people are coming to similar conclusions. Amid airline failures, terrorist threats, hurricane dangers and the medical ailments that afflict an aging population, travel coverage is growing more popular.

Americans spent $1.3 billion on travel insurance in 2006, representing a 20 percent jump over 2004, according to the latest study released by the U.S. Travel Insurance Association, an industry group.

Insurance got a big lift after the Sept. 11 terrorist attacks, which shut down air traffic for days and raised public awareness of travel risks.

Roughly 30 percent of leisure travelers buy it today, compared with about 10 percent before Sept. 11, the U.S. Travel Insurance Association reports.

"Many policies cover terrorist attacks for cities you're coming from, traveling through or going to," said Peter Evans, executive vice president of InsureMyTrip.com, a travel-insurance shopping service.

Insurance has become more relevant amid the recent spate of airline bankruptcies. When an airline, cruise-ship lines or tour operator fails, travel insurance usually kicks in. It also typically pays for ancillary expenses like airport meals or hotel rooms when airlines delay or cancel flights.

"In the case of a bankruptcy of airlines and final shutdown, unless passengers had insurance they would be out of luck," said Ann Saunders, owner of VIP Travel Consultants in Phoenix.

Check the fine print

But policies differ sufficiently on these and other points, and contain enough exclusions and wrinkles, that you should take the time to understand what you're buying. Many travelers are confused about what insurance entails - a point underscored in recent consumer surveys.

For example, while insurers usually reimburse your prepaid expenses when a travel firm goes under, they won't reimburse you if the airline, cruise line or tour operator from which you bought the policy fails, Evans said. That's a good reason to buy directly from an insurer or from third-party firms including travel agencies.

Most policies will reimburse nonrefundable outlays for trips that must be cancelled or interrupted due to unforeseen circumstances such as your own illness, the illness or death of a close relative or severe weather such as a hurricane. Some policies will pay if a flood, fire or other disaster renders your home uninhabitable.

"I'm finding that more boomers are concerned about elderly parents and about grandchildren," said Mary Zimmerman, a certified financial planner in Chandler who doesn't sell travel insurance but pays attention to client concerns. "Events involving either generation are important enough to cancel a trip."

Policies also typically will reimburse you for various expenses if a trip must be delayed.

So, too, for medical costs incurred due to an injury or illness while on a trip.

Then there's the often-overlooked but potentially critical emergency medical-evacuation coverage, which pays for ambulance, helicopter or other unscheduled transportation to the nearest hospital or, in some cases, even back home. This is important because emergency transportation costs can easily dwarf all other trip expenses.

Mike Rex learned that lesson earlier this year while hiking in the Galapagos Islands, when he slipped on a wet rock, ripped a tendon and couldn't walk.

The mishap cut short his vacation and required surgery, which he postponed until he got back to the United States. It also set him back several hundred dollars in unforeseen expenses since he didn't have travel insurance.

Still, Rex feels fortunate in many ways, partly because he was able to use commercial flights to return home.

"If they had had to airlift me out, I heard it would have cost about $50,000," said Rex, 58, an associate real estate broker who lives in Phoenix.

Rex said he's come to appreciate the value of travel insurance and plans to purchase policies for most future trips.

Even if you have health insurance, it might not cover expenses incurred outside your network area - another rationale for travel insurance. Nor will Medicare pay for care outside the country unless you buy supplemental coverage.

"(Foreigners) would look at your insurance card like it was a Blockbuster card," Saunders said.

She found out the hard way during a trip to a Mexican lake resort. On the first day of her vacation, she was descending an old iron staircase when it collapsed. Saunders fractured both arms, broke her leg in three places, endured a drive into Mexico City, spent seven hours waiting for an X-ray, then had her leg put in a cast.

Fortunately, she had purchased travel insurance for the first time on that same trip. It covered her medical expenses and reimbursed her for the unused part of her vacation. But she first had to pay for her medical costs out of pocket.

"This is an important aspect to point out . . . reimbursement (is made) when you arrive home and file claims," said Saunders, who cautions travelers to prepare for initial costs by carrying credit cards or other means of payment.

Costs and riders

Insurance premiums typically run 4 to 8 percent of trip costs, although prices vary by the types of coverage sought, the insurer itself, the age of the traveler and other factors.

"As you get older, you have more medical reasons to cancel," said Evans.

Robert Hockensmith, a Phoenix certified public accountant and financial adviser, has twice recouped travel costs on big-ticket trips to Jamaica.

One trip was cut short by a hurricane, and Hockensmith had to cancel the other vacation when he learned he needed surgery before leaving.

"Anytime you spend thousands of dollars for a trip, you should buy the insurance," Hockensmith suggests, noting that premiums are tax-deductible for business travel.

While most insurance is purchased on a per-trip basis, you also can buy policies providing annual coverage, which is more common for business travel.

You also can add riders to cover adventure-travel activities like whitewater rafting and parachuting.

Many policies feature accidental death and disability coverage while traveling or pay death benefits if you die in a plane crash, Evans said. Many provide hotline services and legal assistance for people traveling in foreign nations.

The insurers issuing travel policies include several well-known entities such as AIG, American Express and RBC. Both Williams and Saunders said they bought coverage and received reimbursement on AIG's Travel Guard policies.

Web site InsureMyTrip.com lists financial-strength ratings for these and other insurers from researcher A.M. Best Co.

Like other types of insurance, most people buy travel coverage hoping they'll never use it. But with so many hazards lurking, many travelers find the costs worth bearing.

"I never travel without insurance," said Williams, "because you just don't know."

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