Why You May Need Extra Baggage Insurance

Sept. 10, 2010— -- Lost, damaged, or delayed baggage is a perennial — but apparently unavoidable — part of travel. And although baggage problems seldom have a lasting effect, they can be extremely galling, especially at the beginning of a trip. Always eager to jump into a possible chance to gain a buck or two, lots of suppliers offer various remedies, or at least palliatives. One of those is extra baggage insurance. Some of it is apparently "free," which really means your cost is there but you don't see it. Other types are extra-pay options. A reporter recently asked:

"Should people consider optional baggage insurance?"

As is so often the case, the short answer is unsatisfactory: "Some should, some shouldn't." And as with many other forms of travel insurance, you may be paying extra for something you already have. Here's an attempt to cover the basics of baggage damage, delay, and loss.

Supplier Liability — the First Claim.

Whether your baggage is delayed, damaged, or lost, your airline or cruise line is the primary party responsible for compensating you. Carriers specify their liability in their contracts of carriage — the official contracts that govern your trip. Those contracts are available online for major airlines and cruise lines. Hotel and rental car contracts vary by state and location. In any case, those suppliers limit their liability by a combination three key catches:

• Dollar caps on even the limited liability they accept.
• Payments limited to depreciated rather than replacement value, often accompanied by a requirement that you produce receipts for each item claimed, no matter how long ago.
• Refusal to cover easily negotiable, high-value, or irreplaceable items such as cash and negotiable securities, valuable papers, precious metals and jewelry, computers, cameras, live animals, and a laundry list of other items.

Extra Coverage Sources

Beyond the travel supplier involved in a delay or loss, you typically have three other options for recovery of baggage delays or losses:

• Your regular household or personal property insurance probably covers at least some of your property when you're away traveling as well as when you're at home.
• Some credit cards provide "free" baggage loss/damage coverage and some sell it as an extra option when you use the card to buy your tickets, rooms, or cabins.
• Third-party bundled trip insurance typically includes coverage for delayed, damaged, or lost baggage.

Whether you get it "free" or buy it, third-party insurance comes with a big catch: It's almost always secondary. That means the insurance covers only the amount of loss that exceeds what you can first recover from the airline, hotel, cruise line, or car rental company.

Credit-card baggage coverage is typically "double-secondary:" It covers only what you can't first recover from the supplier plus any excess you can't then recover from either a travel or personal property policy. That's one reason the credit card companies can so easily offer "free" coverage: The combination of recovery from a supplier plus personal insurance, all subject to a dollar cap, means the credit card seldom has to shell out any major payment.

Because credit-card coverage varies among issuing banks, I show only the coverages posted online by AmEx, MasterCard, and Visa. You have to check your own card for specific benefits.