Last week's collapse of a big Canadian tour operator serves as a timely, if unhappy, warning about the importance of travel insurance. Tour operator failure, of course, isn't the only reason you might need insurance, but it illustrates the need clearly.

As I've noted often before, you should consider trip-cancellation insurance (TCI) any time you make a big upfront deposit or prepayment, on any travel service, that is either nonrefundable or carries a big cancellation penalty. Whenever your exposure is larger than you can afford to ignore should you have to cancel, you probably need insurance:

-- Shaky or uncertain supplier.

You need to protect yourself against complete loss of deposits and prepayments if the supplier fails. Examples of shaky suppliers include tour operators -- sometimes even relatively big ones -- and perhaps some small airlines. Examples of uncertain suppliers include vacation rentals, where you may be dealing with an individual or very small company, but some non-chain overseas hotels and resorts are also uncertain.

-- Your own uncertainties.

You need to protect yourself against loss of deposits or prepayment penalties in the event you have to cancel because of sickness, accident, or other unforeseen events between the time you pay and the time you actually use the service.

Given life's uncertainties, here are my rules for travel insurance:

-- Buy insurance that waives the exclusion for pre-existing medical conditions.

Most big insurers offer that waiver if you buy insurance within seven to 14 days of the time you make your first deposit.

-- If you're concerned with operator failure, buy insurance that covers "failure" of a supplier, not just "bankruptcy."

Unfortunately, some suppliers -- as was the case in Canada -- simply fail without ever filing for bankruptcy.

-- If you're worried that unforeseen job requirements might require that you change travel plans, buy insurance that allows you to cancel for "any reason."

Those policies cost more, but cheaper policies limit the reasons you can cancel.

-- If you need supplemental medical coverage, buy insurance with primary coverage, not secondary -- with primary, you won't have to pay upfront and worry about collecting from your insurer later.

-- When you buy any travel insurance, keep in mind that most policies -- other than primary medical -- provide only secondary recovery. The insurance picks up only what you can't first get back from the suppliers, so if you expect to get most or all of your prepayments back, you may not need much insurance.

-- Buy only the minimum you need to cover your major risks. If you find a good price for what you really need on a "bundled" policy that includes a bunch of minor benefits, fine, but don't pay extra for benefits covering contingencies where you have little or nothing at risk.

-- Buy real insurance, not a waiver. Cruise lines and tour operators sometimes offer "cancellation waivers" that cost less than true insurance. As the name implies, a waiver means the supplier waives its contractual right to its usual cancellation penalties and deposit forfeits if you have to cancel for a reason covered by the waiver. But waivers cover significantly fewer risks than real insurance.

-- Buy insurance underwritten by a real licensed insurance company. A recent dustup in Florida arose when some agencies sold "travel protection" from a company that wasn't licensed to sell insurance, and that company failed. As far as I know, all of the big online travel agencies sell policies from real insurance companies. And if you have a question, look for a company that belongs to the US Travel Insurance Association (USTIA, www.ustia.org).

-- Buy insurance from an online agency that allows you to compare coverage and prices from a bunch of different underwriters. Typically, cruise lines, tour operators, and travel agencies sell policies from only one or two companies, and those policies might not be your best choice. Among the online agencies are 1TravelInsurance (www.1travelinsurance.com), G1G (www.g1g.com), Insure My Trip (www.insuremytrip.com), QuoteWright (www.quotewright.com), Squaremouth (www.squaremouth.com), Total Travel Insurance (www.totaltravelinsurance.com), Travel Insurance Center (www.travelinsurancecenter.com) and Trip Insurance Store (www.tripinsurancestore.com).

 

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(c) 2010 Ed Perkins