How to Buy Protection to Keep Yourself Afloat : Insurance: Shop for the best policy to guard you against medical emergency or last-minute cancellation.

As a travel agent, Sharon Murphy Keyes of Bloomfield Hills, Mich., has a very good reason for offering travel insurance to her cruise-bound customers. On a Caribbean cruise holiday in October, 1991, she and her husband, Robert Keyes, learned firsthand just how valuable the protection can be.

As the ship made its way through the channel between Haiti and Cuba, Robert Keyes suffered what was soon diagnosed as a mild stroke. The ship’s doctor determined his condition was stable enough that he could remain aboard until the ship docked the next morning at Nassau in the Bahamas. There, as his wife tells the story, her husband, who is 65, was flown by specially chartered air ambulance to a hospital in Miami. She stayed at a nearby hotel until he was discharged nine days later.

Robert Keyes’s medical insurance covered hospitalization costs in Miami. But travel insurance, for which they had paid $184, took care of the air ambulance, ambulances in Nassau and Miami, her stay in the Miami hotel and the couple’s return flight home. Had she not been insured, she figures her husband’s sudden illness might have cost them $15,000.

Not surprisingly, Keyes, owner of Travel and Cruise Counselors, urges customers to consider seriously travel or cruise insurance. “I have so many instances of people saying, ‘Nothing’s going to happen,’ ” she says, and then something does.

Cruise insurance, an optional expense, can raise the price of a cruise by as much as 5% to 10%. Royal Cruise Line, which offers weeklong cruises to Alaska beginning at $1,439, charges $139 per person for a full package of cruise insurance. Carnival Corp., which offers a week-long Caribbean cruise beginning at $769, will add an insurance package for $69 more. Access America, an independent insurer, has an insurance package rate of $89 per person for any cruise costing between $1,001 and $2,000. Do you need it? And if so, what kind should you buy?

The answers depend on your individual circumstances, and the choices are varied. Some policies are offered by the cruise lines themselves (“supplier” policies, in industry jargon); others are sold by independent insurance companies (“retail” policies). And a handful of cruise companies still sell what is called a “cancellation fee waiver,” which in a limited way protects passengers’ deposits if they must cancel before the sailing date.

Probably the two best reasons for buying cruise insurance are to cover the costs of an accident or sudden illness occurring during a cruise, and to get reimbursed for your deposit if you are forced to cancel a cruise because of illness or a death in the family. Cruises can cost $200-$400 per person per day, making most trips a substantial financial investment, and most lines impose hefty penalties--up to 100% of the cruise cost--for cancellations within 60 days of the sailing date. Royal, an upscale line attracting older passengers, reports that about 50% of them opt for its insurance package.

Here are some of the most popular coverage options:

* Trip cancellation. It provides deposit reimbursement if you must cancel for personal illness or accident, or for illness, accident or death affecting a traveling companion or family member (as defined by each policy). Typically, travel insurance covers such emergencies up to the moment the ship sails. Royal Cruise Line officials report that the bulk of the claims under its policy come from cancellations within the line’s 60-day penalty period.

In contrast to travel insurance, the cancellation fee waiver sold by several cruise lines usually is not valid for cancellations within one to three days of sailing. For example, Princess Cruises sells a cancellation fee waiver called “At Ease” at a rate of $65 to $75 per person for a seven-day cruise, but its validity expires 72 hours before sailing time. If you break a leg or a relative suffers a heart attack in that three-day period and you decide to stay home, you could lose every cent you paid for the cruise. You could lose, too, if you had to leave the ship because of illness or an emergency at home. On the other hand, with At Ease your reason for canceling--up to three days before departure--is not limited solely to a medical problem or family death. The Princess waiver provides full reimbursement if you have to cancel for any reason.

So what should you do? Phil Davidoff of Belair Travel/Carlson Travel Network in Bowie, Md., recommends buying an insurance policy that covers you until the cruise is over. You should buy enough insurance to provide reimbursement for the full cost of your trip--$2,000 coverage for a $2,000 fare--just in case you have to cancel at the last minute. If you have an inkling that some non-medical emergency such as a business meeting may develop, you might also want to buy a cancellation fee waiver for its added protection.

* Trip interruption. Provides funds for a flight home from the nearest port if a family emergency requires your immediate return, and a refund on the unused portion of your cruise--up to the total amount for which you are insured. If you have to leave your cruise and fly home suddenly, you probably won’t be eligible for an advance-purchase discount fare; instead, you will be expected to pay full fare. Insurance covers costs.

* Emergency medical and dental assistance. Provides limited coverage for medical treatment in cases of illness or injury on a cruise. David F. Gould, vice president of BerkelyCare, which administers the insurance programs of 18 cruise lines, believes temporary medical protection is the most important reason for buying travel or cruise insurance. Many regular health plans, including employee policies, do not cover the cost of medical treatment abroad (a designation which includes the Caribbean except Puerto Rico and the U.S. Virgin Islands).

“Not having medical coverage abroad,” says Gould, “is life threatening,” especially for older travelers. If you have a health plan that provides for coverage abroad, travel insurance generally will pick up costs that insurance doesn’t cover, including a deductible.

Pre-existing medical problems are excluded in the travel policies Gould’s firm handles, which is also generally true with standard health policies. But Gould notes a significant difference in the definition of “pre-existing” between travel and regular medical policies. In the plans he administers, including that sold by Royal Cruise Line, a pre-existing condition such as chronic diabetes can be covered if it has been stable for a specified time (usually 60 to 90 days) before the insurance is purchased.

If you have a chronic but stable illness, look for a travel policy that will cover emergency medical payments in the event of any unexpected recurrence of the problem during the cruise.

* Emergency evacuation. Provides transportation to the nearest appropriate medical facility, if required, with provisions for getting accompanying dependents home. Policies with this benefit may also provide for someone of your choice to remain by your bedside. If your health is frail, this coverage should be considered seriously.

* Default. It’s rare for a cruise line to go bust, but it has happened. Retail policies can protect your deposit, but this coverage generally is not a part of the supplier policies sold by cruise lines. If you don’t buy default protection, you are most in jeopardy on cruises departing from ports outside the United States. Cruise lines departing from U.S. ports, including Puerto Rico, are required to post a bond administered by the Federal Maritime Commission. The bond should cover all passenger payments if a cruise line suddenly shuts down. Paying by credit card also offers a measure of protection; if the ship doesn’t sail, you may be able to contest the charge on your monthly statement.

Other areas that can be covered include missed connections, delays and baggage troubles.

When comparing policies, it is important to check the maximum amount of coverage each policy provides in its list of benefits. Generally, cruise line policies list specific benefits and limit reimbursement to a specified amount, which varies among the lines. With retail insurance, you should be able to purchase as many benefits and as much coverage as you want.

Independent retailers include:

* Access America (6600 W. Broad St., Richmond, Va. 23230; 800-284-8300), which offers two policies designed especially for cruise travelers. Access America Cruise Protection is sold to all cruise passengers; SafeSail provides differing benefits and is sold only through the National Association of Cruise-Only Agencies. * Travel Guard International (1145 Clark St., Stevens Point, Wis. 54481-2980; 800-826-1300), which has put together a cruise-specific package called Insure America Cruise Protection Plan.

* The Travelers Companies/ Ticket and Travel Plans (1 Tower Square, Hartford, Conn. 06183- 5040; 800-243-3174), which sells a package of travel insurance for trips of all kinds, including cruises.