Travel isn't getting any less expensive, and adding travel insurance to your vacation budget is another line item beyond flights, hotels and attractions at your destination.
Yet Business Insider conducted a 2023 survey that found that 38% of Americans purchase some form of insurance for their trips. So what is travel insurance—and is it worth the hassle and the expense? Here are a few important questions to consider.
How does travel insurance work?
"The basic purpose of a standard travel insurance policy is to reimburse travelers for prepaid and non-refundable trip costs if they have to cancel their trip due to a covered reason," says Stan Sandberg, co-founder of TravelInsurance.com, which helps travelers compare and buy travel insurance plans online.
It's important to understand which reasons are covered. Reasons for canceling a trip could range from bad weather at the destination to breaking a leg before a planned ski trip. Most basic travel insurance policies cover canceled or missed flights, lost or damaged luggage, and medical expenses if you get sick or require medical care while you're away. The dollar value covered for lost or stolen items is variable depending on the policy you buy, as is the total amount that may be covered for medical costs.
Depending on where you travel, your existing medical insurance may not be accepted locally—so having supplementary travel insurance could be advantageous. Some travel insurance plans even cover the cost of medical evacuation if you need to receive treatment somewhere other than where you're vacationing—including medical evacuation back to the US or your country of residence.
Who's covered by travel insurance?
You can purchase travel insurance for a single trip or for the duration of 1 year to cover an individual, a couple or an entire family.
"Businesses often take out travel insurance policies on their employees, as they're aware of the potentially high cost of trip cancellation compared to the relatively low cost of trip cancellation insurance coverage," Sandberg says.
There's no one-size-fits-all travel insurance policy, though. The amount of coverage and the costs vary by provider, so it's best to know what kind of activities you'll be doing on your trip to fit the policy to your itinerary.
What's covered by travel insurance?
First, determine what type of travel insurance policy you'll need. Do you want a basic policy that covers general trip costs, such as flight interruptions, lost items and medical emergencies? A standard plan from most travel insurance providers delivers this level of coverage.
Add-ons are usually available for purchase and provide more comprehensive coverage. For example, a policy with an added cancel for any reason, or CFAR, rider allows travelers to recoup most of their expenses for rare or unexpected travel disruptions.
Keep in mind that many insurance providers require travelers to be deemed medically fit to travel before they open a policy.
"Travel insurance is not a catch-all for everything that may go wrong on a trip," explains Terra Baykal, senior marketing manager at World Nomads, a travel insurance provider specializing in adventure sports coverage. "Most policies are what's called named peril policies. That means you are only covered for perils specifically named in the policy, and exclusions and benefit limits apply."
Baykal urges travelers to read the policy wording to make sure they understand what is and isn't covered in a plan.
"Where travelers most often get tripped up and become dissatisfied with their travel insurance is when they don't understand their coverage and then try to claim for something that wasn't covered," she says.
What does travel insurance cost?
Travel insurance costs will vary depending on the amount of coverage provided in the plan. The cost of your trip will also affect how much travel insurance costs as a percentage of your overall travel budget.
Forbes analyzed more than a dozen major travel insurance providers in 2023 and found that the average cost of travel insurance was between 5% and 6% of the trip's total cost for a standard policy.
These averages held true at both ends of the affordability spectrum, whether you plan to spend $1,000 or $30,000 overall on your trip. Insurance plans with higher medical coverage, emergency evacuation provisions and CFAR add-ons could bump up the cost.
And what about travelers on a shoestring budget? Going the ultra-inexpensive route for traveling is where the cost of travel insurance may start to exceed 10% of the overall trip cost. In cases where your trip budget is as low as $500, travel insurance may not be worth the additional expense.
What do I need to file a claim?
If you need to file a claim, the first step is organizing your paperwork. Gather receipts for every item your travel insurance policy would cover. If anything is lost, stolen or damaged, you'll need to let the insurance provider know its value.
Keep a copy of any correspondence with airlines and hotels. If your flight is canceled, take a screenshot or download the email message. It doesn't hurt to ask for compensation directly from the airline before you file a travel insurance claim over a canceled flight.
A police report is required when you file a claim for theft, so ask for a copy when you contact authorities about stolen goods. And finally, if you accrue any medical expenses, send those to your primary health insurance provider to see what they'll cover. If they refuse to pay some or all of the medical costs of your trip, send the difference to your travel insurance provider along with all the documentation related to your medical needs and expenses.
Is travel insurance worth it?
Everyone deserves a vacation now and then. Travel broadens your horizons, and a trip could be your ticket to a memorable or restorative experience. That's certainly worth the investment for many travelers—but is it worth the potential risk of lost funds?
There are some situations, such as a fully refundable trip, where travel insurance may be unnecessary. But also consider unplanned expenses. The peace of mind travel insurance can give you may justify the cost—especially if it's negligible compared to the cost of your trip. And if trouble arises, you'll be glad you're protected.
