Exclusions May Cancel Out Benefits of Trip Insurance

To some people, one of the most compelling questions amid the Los Angeles riots was whether they would lose their money if they canceled a planned L.A. trip. The answer--probably, even those covered by trip cancellation insurance.

Depending on the carrier and the chosen policy, this insurance may cover terrorism, war or hostile actions, but not civil disorder, which includes riots. And it may only cover the mayhem at a traveler’s departure point, not his destination.

In spite of such fine exclusions, trip cancellation insurance is pretty popular now, if barely existent a decade ago. In between, of course, a lot of tour operators, tour packagers and even airlines went under, leaving travelers with worthless tickets, sometimes in faraway places.

Consumers, moreover, are generally more insecure. “Our lives are not as stable as they used to be,” says Andrea Green, supervisor in a San Francisco American Express travel agency, where the company’s own travel protection plans are strongly suggested. People are worried about their jobs and about money. And, says Green, “the stakes are higher”: reservations must be booked and paid earlier, and vendors aren’t as flexible about cancellations or schedule changes.

Whether trip insurance will pay off is a judgment call, and not really a consumer’s judgment. After all, it is insurance, a field whose success depends on excluding the most foreseeable circumstances.

Generally, the policies apply if someone has to cancel or come home because of illness, accident or death--the traveler’s or that of any family member. They also cover cancellation because of unforeseen circumstances--”oddball circumstances” such as an accident on the way to the airport, a fire at home, bad weather or an airport closure, says Thomas Zavadsky, vice president of sales and marketing for Travel Guard, one of the biggest trip insurance carriers.

They also cover cancellations caused by the “supplier.” This might be the bankruptcy, insolvency or some other “default” of a tour operator or carrier, including sudden disappearance with everybody’s funds.

What they don’t cover may be a longer list, starting with those selected hostile actions. Bad weather has to be really bad, on the order of blizzard or monsoon. “If you go to Florida and it rains, or to Aspen and it doesn’t snow,” Zavadsky says, “that’s just a peril of going on vacation.”

Carriers may also deal rather closely on medical excuses, excluding certain sports injuries, mental illness, pregnancy problems and any “pre-existing condition.” One carrier might exclude anything treated in the past half year; another might permit something treated but “controlled” by regular medication. Unfortunately, such questions would surely arise with elderly people--a prime target group for such policies.

Similarly, these policies may not cover default by the particular agency or operator that sells customers the policy, although that’s who usually sells them.

Like all a la carte insurance--one-time, one-situation coverage--these policies aren’t cheap, ranging from 5% to 8% of the trip’s value. And as with all insurance, consumers have to decide rather blindly, measuring their own past experience and current situation against their guess at the future.

They may find some of this protection available to them elsewhere. Their medical insurance may cover medical costs while traveling; their homeowner’s policy may cover lost baggage. If they charge their tickets to a credit card and the trip provider defaults--by fraud or failure--they may be able to reject or “charge back” the amount.

Some tour companies offer their own cancellation clauses, allowing ticket-holders to back out for a nominal fee or penalty. Airlines too may allow cancellations or changes for documented illness or bereavement, although such policies are getting more restrictive because “a lot of people were coming up with doctor’s letters,” Green says.

Like the extra warranty protections now aggressively sold with appliances, these policies are now urged on consumers along with their tickets. Like the warranties, moreover, they may be selling protection against the product’s own weakness, or an option (here, consumer cancellation) that perhaps the product itself should include.

In certain circumstances, relatively foreseeable, it could be a good deal--if the trip is high risk perhaps, or the cost is high money, or the consumer has high anxiety. “I thought about buying insurance when I was planning a trip to Greece and everyone was worried about terrorism in the area,” one regular traveler says. “But I realized I had never actually canceled a trip and would probably go anyway, so I just went ahead without it.”