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Understanding Travel Insurance

A travel insurance primer from


Traveling can be exciting and rewarding, but it can also be expensive when the unexpected occurs far from home such as sickness or injury, travel delay, baggage loss, or worse. In the past decade medical costs have increased dramatically worldwide and even countries with subsidized National Health plans now demand payment in full from foreign visitors for medical services rendered. At the same time travel suppliers such as airlines, and tour operators worldwide have made cancellation policies more restrictive, so if you have to cancel a trip it's likely that a substantial portion of your pre-paid travel expenses will not be refunded, and if you have to interrupt a trip mid-way, a last minute, one-way economy fare return-flight is now likely to be more costly than ever. Moreover, the reality of global terrorism, increased travel industry bankruptcies, global economic instability, and the overall unpredictability of life today causes many people to seek ways to minimize the unique financial risks associated with travel.

As a result, savvy travelers purchase travel insurance in order to protect against the potentially staggering financial costs resulting from crises such as the cancellation of a big trip due to death or illness of a family member or a required emergency medical evacuation.

Basic Plan Types

There are many types of travel insurance and choosing the right plan can be confusing. Becoming familiar with the basic types of plans and the specialized terms will make it easier to compare plans, and ultimately choose the right plan for your needs. breaks down travel insurance into five major categories:
  • Accidental Death & Dismemberment (AD&D)
  • Trip Protection
  • International Medical Insurance
  • Annual Medical
  • Emergency Medical Evacuation.

  • Accidental Death & Dismemberment (AD&D) insurance pays the insured or its beneficiary a substantial lump sum benefit when an accident results in death or the loss of a body part. Often people think travel insurance means flight accident insurance. Flight accident insurance is a type of AD&D that pays a benefit only when an airplane accident results in death or the loss of a body part. Common Carrier AD&D is a type of AD&D that pays a benefit only when an accident involving a common carrier results in death or the loss of a body part. Finally, the broadest type of AD&D is 24-Hour AD&D which pays a benefit when any accident results in death or the loss of a body part so long as the accident occurs during a covered trip.

    Accidents due to terrorism may or may not be covered depending on the policy. Acts of war, and nuclear, chemical, and biological attacks are usually excluded, but policies that waive the exclusions can be purchased at a considerable cost.

    Trip Protection Plans typically reimburse your non-reimbursed travel expenses if an emergency (death, sickness, airline strike, travel company bankruptcy, etc.) occurs right before or during your trip causing it to be canceled, interrupted or delayed. Often these plans include travel assistance services, coverage for lost or damaged baggage, as well as minimal coverage for incurred medical expenses. Although the maximum benefit limits for medical expenses may be relatively low, often there is no deductible or co-pay. Usually travel protection plans are sold on a per-trip or single-trip basis but some plans can be purchased on an annual multi-trip. Annual multi-trip travel protection plans offer all of the benefits of single-trip protection plans except annual multi-trip plans almost never cover trip cancellation.

    Travel protection plans offer good protection for international and domestic travel when your trip cost is substantial. The medical expenses coverage can save Americans money when illness or injury occurs while traveling within the US, especially when your primary health insurance coverage is an HMO or PPO. Travel protection plans cover increased "out-of-pocket" expenses that result from higher co-pays and deductibles because you're "out-of-network."

    International Medical Insurance is medical insurance designed to reimburse you for medical expenses incurred when you are traveling or living in a foreign country for two weeks to two years. Maximum policy coverage levels can be substantial enough (more than US$1 million if desired) to cover major medical expenses such as emergency surgery and extended hospital stays. The "American-style" of international medical insurance coverage is subject to the specified deductible (excess in the UK) and co-insurance or co-pay. Plans may include emergency evacuation, reunion, and repatriation benefits, as well as AD&D and travel assistance services. The plans allow you to choose the maximum policy coverage level and deductible, which affects the premiums, giving you more control over costs than is the case with travel protection plans. Some plans are renewable up to a maximum of 24 consecutive months.

    Whereas travel protection plans are often limited to residents of the US or Canada, international medical insurance is available to all nationalities traveling worldwide. Coverage is guaranteed without underwriting, which means all applicants who have paid premiums are automatically covered regardless of medical history. No medical questions are asked. Pre-existing conditions are generally excluded.

    Annual Medical Insurance is annually renewable international medical insurance with higher maximum policy coverage levels (up to US$5 million) and more comprehensive types of coverage (life insurance, higher limits of AD&D, and daily indemnity for hospitalization can be added to coverage for additional premiums). Coverage is appropriate for individual expatriates and their families, as well as employees working abroad, international organizations, missionaries, and others who want annually renewable major medical insurance to serve as their primary medical insurance. Coverage is available to all nationalities living outside their country of citizenship (or home country depending on the plan). Some plans will cover you in your home country as well as everywhere else in the world. Medical questions are asked and may result in applicant being subject to underwriting in which case a policy may or may not be issued depending on the judgment of the underwriter. Pre-existing conditions may be covered up to a maximum limit that is a fraction of the policy maximum.

    Emergency Medical Evacuation protection covers the cost of a transporting a seriously injured or ill person to an adequate medical facility, a hospital near home, or the hospital of their choice, depending on the plan. This coverage is usually included with both international medical insurance and travel protection plans, but unlike baggage insurance and trip cancellation insurance, it is also sold separately. Emergency medical evacuations are always expensive and sufficient coverage is recommended, especially for long-distance trips.

    International Major Medical Insurance is primary medical insurance intended to take the place of a domestic private health insurance policy or national health care system. International Major Medical Insurance plans typically feature:
    • Worldwide coverage
    • Option to renew the policy indefinitely
    • High lifetime policy maximum benefits (up to US$5 million)
    • Choice of deductible (also known as "excess")
    • Comprehensive coverage such as organ transplants, major surgery,
    • Optional Riders (for additional premium) such as life insurance, upgraded AD&D, and daily indemnity for hospitalization
    • Coverage for routine healthcare/wellness, prescription drugs, alternative medicines, mental/nervous care
    • Coverage for maternity, newborns, and child wellness
    • Limited coverage for pre-existing conditions
    Some International Major Medical insurance plans will cover you in the United States and Canada as well as the rest of the world. Some plans exclude coverage in the United States and Canada. For some plans your country of citizenship determines eligibility for coverage in a certain country. For other plans the country where your primary residence is determines eligibility.

    Some plans exclude pre-existing conditions until you have been insured with the plan for a certain period of time. Some plans cover pre-existing conditions if you are currently insured by a US health plan that provides "creditable coverage" or you have been continuously covered by comparable health insurance. Some plans exclude pre-existing conditions regardless. Some plans cover routine healthcare, also known as "wellness" benefits, and some plans offer vision and dental benefits.

    International Life Insurance is usually sold as one-year renewable term life insurance that pays the beneficiary a lump sum upon the death of the insured during the period of coverage (12 months). Five, 10, and even 20 year international term life insurance may also be available in limited circumstances. International Life Insurance plans typically feature a simplified application process requiring the completion of a a detailed medical questionnaire but not requiring a blood test or physical exam. However, benefits are not payable if death is due to a pre-existing condition that manifested within prior five years. Death due to War and Terrorism is usually excluded but an Optional War & Terrorism Rider is often available for additional premium. In most cases coverage is available regardless of the insured's nationality and country of residence.

    Key features of International Life Insurance are:
    • Worldwide coverage (rates are higher for high risk countries)
    • Option to renew the policy annually through age 64
    • High Maximum Benefits - up to US$1,000,000 or higher.

    International Accident Insurance (also known as Accidental Death and Dismemberment or AD&D) is annually renewable insurance that pays a lump sum benefit to the insured's beneficiary in the event of the insured's death or loss of a body part or function due to accident (as opposed to sickness). AD&D is typically less expensive than life insurance and may be purchased in addition to a life insurance policy to substantially increase the benefit payable to the beneficiary if the insured dies as a result of an accident. An Accidental Permanent Total Disability (APTD) benefit may be available for additional premium. Death due to War or Terrorism is usually excluded but an Optional War & Terrorism Rider is often available for additional premium. Coverage for travel to war zones is available for journalists, contractors, and relief workers. Where travel to high risk countries and/or participation in extreme sports or hazardous activities is contemplated, premiums will be adjusted accordingly. In most cases coverage is available regardless of the insured's nationality and country of residence. US citizens residing in the US or Canada and citizens of Canada residing in the US or Canada are not eligible.

    Key features of International Accident Insurance are:
    • Worldwide coverage (rates are higher for high risk countries)
    • Option to renew the policy annually through age 64
    • High Maximum Benefits - up to US$1,000,000 or higher.

    Special Interest Topics

    International Travel

    When planning a trip abroad it is best to find out from your insurance agent or primary health care administrator (i.e., individual or group private medical insurance, HMO, PPO, ministry of health, etc.) whether you are covered for medical expenses incurred while traveling abroad. Many people are surprised to discover that their health care provider offers little or no protection or reimbursement for the costs of any type of medical treatment received in a foreign country. Where this is the case, purchasing adequate international travel insurance is a prudent option.

    Student Travel

    Students studying or traveling abroad should make sure they are aware of what insurance coverage their school or study abroad program provides, if any. Usually travel insurance is not included in a program's fees and is entirely the student's responsibility. When offered insurance always contact a few additional travel insurance providers on the Internet to compare rates and benefits, and call if you have questions. Students with health insurance coverage during the academic year are often not covered during the summer. Moreover, domestic health insurance designed for students will very rarely cover travel abroad.

    Students 26 years old and younger can often find low-cost travel insurance because they are less prone to illness than older travelers, so students should ask about student rates, especially when traveling in a group of five or more when discounts can be substantial. International student ID cards often feature travel assistance services but be aware that this is not insurance and will not reimburse you for medical expenses or extra travel expenses due to delays, lost luggage, etc.

    Group Travel Insurance

    Group travel insurance may be available when at least 5 travelers (usually 10 or more) on the same itinerary apply for travel insurance coverage on one application. To ease the administration most group travel insurance plans are not age-rated which means the plans are the same price for all ages, and dates of birth are not required on the application. Purchasing group travel insurance can result in substantial savings in many cases, particularly for large groups (20 or more travelers), and especially for students and seniors.

    Travel Supplier Bankruptcy/Default

    Many trip protection plans cover lost travel expenses due to travel supplier bankruptcy and default (cessation) of services but there are substantial differences among plans. Some plans provide a list of travel suppliers that can be covered and exclude all others. Some plans require that you purchase the insurance within 7-14 days of paying the initial deposit for your trip. Many plans exclude coverage if the travel supplier that goes bankrupt or defaults is the same travel supplier that provided you with the travel protection plan. Customized "wholesale" plans provided by cruise lines and tour operators directly to travelers never cover bankruptcy or default of the cruise line or tour operator offering the plan.

    Terrorism and War

    After the tragedies of September 11th, 2001 many travel protection plans modified their wordings regarding terrorism. Many plans will cover trip costs in the event of trip cancellation due to terrorism, but wordings differ in important ways so read the clauses carefully and email or call and ask questions if you are confused. Generally, if a plan covers trip cancellation due to terrorism you may be eligible for trip cancellation benefits if a terrorist attack occurs in the your destination country or city or a city or country on your itinerary so long as the attack occurred after you purchased the policy and within a specified number of days of your scheduled arrival (often 30 days). Be aware that how terrorism is defined in the policy is important and varies from policy to policy. Pay close attention to the words "City" and "Country" in terrorism clauses.

    Coverage for acts of war as well as nuclear, chemical, and biological attacks is generally excluded from travel insurance plans, but individually underwritten high limit coverage is available (at a high cost) from specialty high-risk insurance underwriters such as Lloyd's of London, to cover medical expenses as well as accidental death & dismemberment, but not trip cancellation.

    Glossary of Insurance Terms

    Travel Assistance: Travel Assistance services may be bundled into an international medical insurance or trip protection plan, but these services are not considered insurance. The term travel assistance covers a broad range of services, often including but not limited to: toll-free multi-lingual 24-hour emergency telephone numbers, local offices around the world, web sites offering aid and advice to travelers in need of travel, medical or legal help, translation services, passport and visa assistance, assistance filling prescriptions, and virtually any special assistance useful to travelers in crisis who are far from home.

    Some credit cards and international student identification cards and associations offer complimentary travel assistance benefits to their cardholders and members. However, keep in mind that although travel assistance services can provide instant help with a free phone call when needed most, not all services are free of charge once rendered. Many travel assistance services, such as legal counsel or translation services, are provided without question at the time of need, but with the clear understanding that the traveler will subsequently reimburse that service provider at a later date when the traveler is in a more convenient position to pay for the service(s) rendered.

    Maximum Policy Coverage: This is the maximum amount of money that the insurance provider will pay for covered expenses. This may be an overall maximum or an amount for each accident or illness.

    Deductible: (Also known as excess in UK, NZ, AU) This is the amount that the insured must pay before the insurance provider starts paying. This may be an annual amount, an amount for the duration of the policy, or an amount for each incident.

    Co-Insurance or Co-pay: This is the percentage or amount of expenses that the insured pays (if any) after the deductible is paid. Example: "Co-Insurance = 20% or co-pay is 80/20" means that the insurance company pays 80% of the charges, the insured pays 20%. Often there is a maximum co-pay amount, i.e., a limit or ceiling above which the insurance provider pays 100%. Example: "Deductible = $250 and 80/20 co-pay up to $5000, then 100% up to policy maximum." This means the insured is required to pay the deductible of $250 plus 20% of expenses up to $5,000, and the insurance provider pays 100% of covered expenses that exceed $5000 up to the maximum policy coverage limit. Thus, if total expenses exceed $5000 (e.g. $20,000 in total medical expenses) then the insured pays $250 (deductible) plus the co-pay maximum of $1000 (20% of the first $5000) for a total out-of-pocket cost to the insured of $1250, and the insurer pays the remaining $18,750 of expenses. Where total expenses are only $3000, then the insured pays $250 (deductible) plus $550 co-pay (20% of the remaining $2750) for a total out of pocket cost of $800, and the insurer pays the remaining $2200 of expenses.

    Expenses: These are the expenses an insurance provider will consider for payment. These normally include expenses for surgery, hospitalization, doctors' services, x-rays, laboratory tests, prescription drugs and other treatments, as well as travel expenses such as necessities in the event of travel delay, baggage delay or loss, and non-refundable travel pre-paid travel costs in the cases of trip interruption and/or cancellation. Some of these expenses may be limited by the insurance contract. See exclusions.

    Exclusions: These are the expenses that the insurance company or travel protection provider will not pay. Examples include: expenses resulting from illegal drug use, pregnancy, conditions which existed prior to the purchase of the insurance (see pre-existing conditions), participation in various dangerous activities, participation in certain types of sports (see hazardous sports and activities coverage), expenses resulting from acts of war, riot, insurrection, etc. Most insurance contracts have many of these exclusions. It is important to read brochures carefully.

    Premiums: This is the amount that you pay to purchase international medical insurance, AD&D insurance, or travel protection plans. Premiums may be paid in advance, on a per trip basis, annually, monthly, quarterly, or by semester, depending on the policy. Premiums for travel protection plans are usually paid in advance, either annually or on a per trip basis.

    Emergency Reunion and Repatriation Benefits: Emergency reunion (also known as "visitor to bedside" ) means covering the expenses for having a family member transported to the injured or ill insured during a medical emergency. Lodging expenses are generally covered. The repatriation benefit pays the cost of preparing the body of a person who dies in a foreign country and returning the body to the deceased's home country. These benefits are often bundled together and included in international medical insurance and travel protection plans.

    Insured: This is the person covered under an insurance policy, i.e., the person for whom the policy was purchased.

    Pre-existing Conditions: Medical conditions associated with the insured (or a spouse, travel companion, or close relative in the case of travel protection plans where trip cancellation results from the medical condition of someone other than the insured ) that existed before the plan or policy took effect are pre-existing conditions.

    Many plans and policies offer limited or no coverage for medical expenses or trip cancellation expenses resulting from pre-existing medical conditions. These are known as pre-existing conditions exclusions. Most plans specify a period of time prior to the effective date of the policy (known as the "look-back period") during which any manifestation of a pre-existing conditions would constitute exclusions. Example: Pre-existing conditions exclusions are limited to "three years prior to the effective date of the policy." This means any expenses that are incurred after the policy effective date that are resulting from medical conditions that were manifested or treated within the last three years would not be covered. However, the look-back period for travel protection plans vary from 180 to as few as 60 days. Often when purchasing single-trip travel protection plans pre-existing conditions exclusions may be waived if the plan is purchased within a certain number of days after the initial trip deposit is paid (often 14-21 days).

    Hazardous Sports & Activities Coverage: Coverage for medical expenses and/or trip cancellation resulting from engaging in certain hazardous, high risk sports and activities such as scuba and sky diving, rock climbing and bungee jumping (to name a few), is often explicitly excluded by international medical insurance and travel protection plans; however, some plans offer special hazardous sports and activities coverage that is optional and usually results in a only a modest increase in premium. Always make sure you are aware of the exclusions noted in the plan or policy you're considering, and if you plan to participate in any high-risk activities, look for plans with optional, supplementary hazardous sports and activity coverage.

    Single-Trip: Single-trip plans cover one trip, usually up to a maximum of 180 days.

    Annual Multi-Trip: Annual multi-trip plans cover all trips taken within a year (often with a maximum duration of 15-180 days per trip).

    Individual Plans: Individual plans are designed and priced to cover one person.

    Family Plans: Family plans are designed to cover all members in a family traveling together, and premiums are usually priced at a discount compared to the rate for a single person. Some family plans include relations beyond the immediate family, such as grandparents and in-laws.

    Primary Coverage: Primary coverage plans provide coverage without regard to any other insurance or coverage the plan holder may have.

    Secondary Coverage: Secondary coverage plans require plan holders to have primary coverage, and the secondary coverage only covers those expenses not already covered by the primary coverage plan.

    Benefits: The amount payable by the insurance provider to a claimant, assignee or beneficiary under each policy.

    Beneficiary: The person or persons designated by the insured to receive the proceeds of an insurance policy upon the death of the insured.

    Common Carrier: Any conveyance for transporting passengers is a common carrier, such as a bus, train, airplane, ferry, limousine or taxi. A rental car or private vehicle is not a common carrier.

    Daily Indemnity for Hospitalization: a fixed sum calculated per-day that the insured receives to replace lost income for each day spent as a hospital inpatient.

    Underwriting: The underwriting process evaluates the likelihood an insured event will occur, determines its likely cost, and whether or not the company should assume a particular risk (accept an applicant and offer coverage).

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