Do You Need Travel Insurance?

Take your pick. The myriad reasons you might have to suddenly cancel your travel plans reads like Murphy's Law. And when things fall spectacularly apart, that often means losing nonrefundable portions of your air, hotel and other travel expenses.

The answer, or so carriers and travel agents will tell you, is travel insurance. A comprehensive travel insurance plan protects you on two levels. Cancellation/interruption insurance covers the nonrefundable and additional costs to you should you need to return home midtrip or cancel it altogether. Medical insurance covers costs for medical expenses, and often includes a portion for emergency evacuation or airlift in the event of a serious accident. Expect to spend 3% to 7% of the cost of your trip, estimates Doug Stallings, an editor at Fodor's. Senior citizens and travelers heading to unstable regions can easily spend 15% or more.

So is travel insurance necessary? "Most people don't need it," says Robert Hunter, director of insurance for the Consumer Federation of America, a consumer advocate. "But if you can't sleep at night, get the insurance."

Here's how to gauge whether travel insurance is a good idea for you:

If you do decide to purchase, know that policies vary widely, so it pays to shop around. To get the best deal, there are five tips to keep in mind:

Check your current coverage
First, check your homeowners' policy. "Usually, up to 10% of the value of your stuff is covered away from home," says Hunter. That means you can skip coverage for lost or damaged baggage. A more important call is the one to your health-insurance provider. Your coverage may not extend outside the country. "Medicare will reimburse absolutely nothing once you set foot outside the United States," warns Stallings. "And that includes setting foot on a cruise ship."

Self-insure
If you are confident you can stomach the loss of the nonrefundable portion of your trip, consider socking away cash in your emergency fund instead, Stallings suggests. That way, the cash will be available if you encounter any emergency, not just one that occurs while traveling.

Go independent
Buying insurance from the same company you've purchased a tour or travel service from spells trouble. "We've seen in the past, especially post-9/11, small travel companies had to shutter," says David Lytle, editorial director for Frommers.com. There's the potential to lose not only the cash spent for your trip, but also the money spent on insurance. Even if your tour operator isn't likely to go under, it may include a policy clause that provides for a credit for a future trip rather than cash.

There are plenty of independent companies to choose from. For quick price comparisons, check out Insure.com, QuoteWright, Insure My Trip or Square Mouth.

Read the fine print
"Travel insurance has a lot of loopholes," says George Hobica, publisher of Airfare Watchdog, a site that tracks airfare. Say you're worried about a terrorist attack. Policies only kick in under certain circumstances, for example, if the attack was in your destination city. And even so, terrorism may be narrowly defined. For example, although Islamist group Hezbollah was a key player in the recent conflict between Israel and Lebanon, coverage against terrorism wouldn't apply. "That was labeled a war by most companies, and they don't cover war," he says.

If you're willing to pay a little more for less fine print, consider Travel Safe, Abrams and Hobica advise. The company's "Cancel for Any Reason" add-on does exactly what it advertises. Cancel for a regularly covered reason, say, a death in the family, and you'll get back 100% of nonrefundable costs. Cancel because your pet goldfish died or you couldn't find your left sneaker, and you'll get 75% of the nonrefundable costs back. Regularly, a company policy for a 35-year-old heading on a two-week, $7,000 vacation would cost $270. The same policy with "Cancel for Any Reason" would cost $378.

Timing is everything
In most situations, it pays to get your insurance immediately after booking a trip, says Stallings. "Almost all the exclusions happen after a certain period of time," he says. TripMate Travel Insurance Services covers pre-existing medical conditions only if you pay for the plan within 15 days of the initial deposit for your trip. The exception to the rule: cruises. "Buying early is a rookie mistake," says Chiron. "You don't need any until you enter a penalty period. Until then, you don't have any risk."