Oct. 25, 2010 -- Recent data indicate that most of you are ignoring the government's latest alert about increased terrorism activities in Europe. Instead, you're going ahead anyway. Some are planning to try to minimize risks, while others are scoffing at the "threat."
Certainly, as I've already noted, the government's statements have been long on generalities and very short on specific, useful suggestions. Still, many of you are a bit queasy about putting a lot of money up front for a trip you may later decide isn't such a good idea.
One traveler raised this question:
"We're about to put a big nonrefundable deposit on a rental in Tuscany for next spring. Right now, we're not overly worried about local threats, but we don't know what might happen between now and our departure date. Should we buy travel insurance, just in case?"
My short answer is, "Probably you should -- not just for the terrorist threat, either -- and if you do, buy insurance that allows you to cancel for any reason." Here's why.
Who Needs TCI
In the event that you have to cancel a trip, trip cancellation/interruption insurance (TCI) covers any prepayments and deposits you can't first recover from the suppliers you paid. I recommend TCI to anyone who has a significant dollar value in prepayments and deposits that are either nonrefundable or carry a hefty cancellation penalty, especially if you make those payments months in advance.
Even if you're young and healthy, you never can be sure nothing will happen between the time you book and the time you depart that might make travel impractical or impossible. And even if nothing happens to you, you might also have to cancel if something happens to a sibling, son/daughter or parent.
To me, TCI is just sensible: For somewhere between 5 percent and 10 percent of the total amount at risk, you can protect yourself against a wide range of unforeseen circumstances that might make you cancel your trip.
Travel Insurance Details
The Tyranny of 'Covered' Reasons and 'Named Perils'
The main catch with most TCI policies is that they compensate you only when you cancel for a "covered" medical reason or a "named peril" event that is spelled out in excruciating detail in the policies' fine print. If your reason for cancellation is "covered," the policy pays off. If it isn't, "gee, sorry about that."
Sickness and Accident: Much of the fine print centers on sickness and accidents. Most policies cover you if something happens to you, a traveling companion or a close relative/companion at home, and the policies get quite specific about what and who fall under the various definitions. For the most part, the boundaries make sense. The one major bone of contention is often whether a nominally qualifying sickness that requires you to cancel is new or a "pre-existing condition." Although policies typically exclude cancellations for pre-existing conditions, many companies waive that exclusion if you buy the insurance as soon as you start paying for your trip. Given this sensible out, my take is that coverage for sickness and accident is pretty straightforward, with no serious gotchas, as long as you make sure to comply with the purchase restriction that waives the exclusion for pre-existing conditions.
Terrorism: Cancellation for actual or potential terrorism is a different story. Although "terrorism" typically is included as a "named peril," details vary among issuing companies. In general, policies do not reimburse cancellations for terrorism unless an overt terrorist attack has occurred in your specific destination within a few weeks of your planned arrival. A few allow cancellation without a specific event, but only if the State Department has issued an official warning. Many policies cover terrorism only if you buy the policy within a week or two of the time you make your first payment, and many don't pay off if even a covered event is foreseeable at the time you buy your policy.
The State Department's current announcement is officially a "travel alert," a class of statement that is lower in the pronouncement hierarchy than a "travel warning." And, as far as I can tell, insurance companies are not currently accepting the current alert as a basis for cancellation. Moreover, coverage is not likely to kick in even if the State Department subsequently raises its existing alert into a warning.
Travel Insurance Loopholes
Other Reasons: Travelers face similar restrictions for other non-sickness cancellations. For example, most policies won't allow you to cancel because of an impending hurricane unless and until it actually hits your destination, or at least until the National Weather Service issues a hurricane warning for the destination. Some companies waffled on compensation for the Icelandic volcano ash problem as they tried to decide whether the event was a "natural disaster," which is typically a named peril, or "weather," which typically is excluded. And only a few policies compensate you if you have to cancel for a work-related reason.
Avoid the Hassle
Fortunately, you can avoid problems with covered reasons: Buy a TCI policy that allows you to cancel for any reason. Several companies sell policies with that option. With one of those policies, you call the shots completely: You can cancel even if you just wake up the day before departure and decide you'd rather just stay in bed for a couple of weeks.
Obviously, you have to pay extra for such broad coverage. Some companies charge stiff premiums; others limit any-reason compensation to just 75 percent to 90 percent of prepayments. And, as in the case of pre-existing medical conditions, you generally have to buy the insurance within a week or two of the time you make your first payment. Prices vary with your age and the nature of your trip, so deciding which approach is best for you is an individual decision. But any "any reason" policy provides a lot more flexibility than the more typical policy full of "covered reason' exclusions.
As is usual, I recommend you check with a few of the big online travel insurance agencies to decide which policy best suits your trip and your personal situation:
SquareMouth (also operates as QuoteTravelInsurance)
All of these sites provide user-friendly comparison tools that make policy comparisons extremely easy. And all represent the major underwriters in the business.
Ed Perkins is a contributing editor to SmarterTravel and a respected commentator on all aspects of the travel industry, including passenger comfort and rights, travel insurance, the best credit cards for travelers and car rental fees. SmarterTravel provides expert, unbiased information on timely travel deals, the best value destinations, and money-saving travel tips.