How Much Coverage Should You Buy?

The possibility of illness, accident, natural disaster, travel supplier bankruptcy, and terrorism, all of which can cancel or interrupt a European vacation, are the chief reasons an increasing percentage of travelers are insuring their trips. But how much coverage do you really need?

Assess Your Travel Insurance Needs

Before you buy a policy you must determine the extent of financial loss if your trip is canceled or interrupted. The first step is find out how much, if any, overseas coverage you already have under existing homeowners insurance and healthcare policies. For example, your homeowners insurance may reimburse for the value of personal property lost or stolen in Europe and your health insurer may pay for overseas medical costs. (Medicare customers, it should be noted, are not covered in foreign countries, though certain Medicare supplemental policies cover emergency medical services provided outside the U.S.)

Once you know the extent of existing coverage, it's time to fill in the blanks with a policy from a company specializing in travel insurance. Though several companies offer similar coverage, for the purpose of this discussion we will refer to the travel insurance policies sold by Travel Guard, part of insurance giant AIG. We like Travel Guard for its claims payment reliability and its 24/7 emergency travel assistance service.

To figure how much you stand to lose if your trip is canceled or interrupted, simply list what you've paid prior to trip departure and how many of those dollars will be not be refunded if something unexpected happens. It may be less then you think. For example, if you've rented a car through Gemut.com and paid in advance, it's immediately refundable at any time for any reason. You'll probably only forfeit 15 percent of the total cost of a rail pass, plus perhaps a relatively minor administrative fee. Check the cancellation policy at any hotels you've booked. Often there is no penalty if you cancel 72 hours before arrival. However, most airline tickets these days are non-refundable and if you've paid several thousand dollars in advance for a cruise and have to bow out at the last minute, there will not be any refund. The same goes if you've booked a tour or paid in advance to rent a house or apartment.

Buying Travel Insurance

Here are a few travel insurance scenarios with our recommendations:

1 A 59-year-old couple in good health are covered for overseas medical by their U.S. health insurer. They have a pair of airline tickets cancelable at $500 each, five hotel bookings that can be canceled 24 hours in advance, and a rental car that can be canceled at anytime.

Recommendation: With an exposure of about $1000, this couple may want to self-insure. On the other hand, for $18 each ($300 coverage per person), they can purchase Travel Guard's Air Ticket Protection Plan, which will reimburse the $500 cancel penalty, plus provide accidental death and dismemberment coverage of $25,000 per person, ticket change reimbursement of $100, and lost/delayed baggage and person effects protection.

Important Tip: Do not fail to purchase trip insurance within 15 days of making your initial trip payment. If you do not, any pre-existing medical condition will be excluded from coverage. In other words, if you've been treated for a heart condition in the 180 days prior to travel, and have a heart attack while traveling, you will not be covered. Note: Insurers other than Travel Guard may require shorter or longer periods between the dates of trip booking and the purchase of insurance.

2 A 72-year-old couple in problematic health and with no overseas medical coverage has purchased a 12-day river cruise for $5,000 per person. The price includes air travel.

Recommendation: Since the entire $10,000 is forfeited if cancellation is within 30 days of departure, this couple should purchase Travel Guard's Protect/Assist policy. At their age, $5,000 coverage is $401, not an insignificant sum. But, assuming they buy the insurance within 15 days of booking the cruise, here's what they get in addition to reimbursement for the cost of their cruise: Pre-existing medical conditions are waived; medical coverage, $25,000; emergency medical transportation, $500,000; travel delay, $1,500; missed connection $500; baggage & personal effects loss, $750; baggage delay, $250; and flight insurance, $50,000. For an extra $30 person, they can increase medical insurance to $50,000 and the emergency medical transportation to $1 million.

3 A couple in their early 40s has no overseas medical insurance but no other financial exposure: Air tickets were obtained with frequent flyer miles, their hotel reservations can be canceled, and they've wisely booked a rental car that can be canceled without penalty.

Recommendation: The problem here is obviously medical coverage and fortunately there's an inexpensive solution. They can specify a trip cost of $0, and for $19 each purchase the Travel Guard Essential policy. It provides $10,000 in medical insurance, and for an additional $6 per person they can increase coverage to $20,000. They also get $1,000 trip interruption (return air only), $500 travel delay, $100,000 in emergency medical transportation insurance, plus various lost and delayed baggage coverage.

There are many other options and lots of fine print. You can investigate on your own and purchase a policy here.