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Is Travel Insurance Worth It?

Not since 9/11 have travelers seen chaos on the scale as recently caused by the volcano eruption in Iceland when over 17,000 flights were cancelled in Europe. As was the case after 9/11, more folks will probably buy travel insurance in the future.

Travel insurance -- about one in three travelers buy it -- typically combines three forms of insurance: trip cancellation/interruption, personal effects coverage, and emergency medical insurance. Let's look at each of these.

Trip cancellation insurance typically costs about five percent of the total cost of the travel. So travel insurance for a $10,000 vacation would cost about $500. But you might already be covered under insurance you already have.

To find out, first look into the trip cancellation benefits provided by your credit card, which often includes some coverage. Also, when dealing with reputable travel agencies, you are likely to receive refunds on cancelled trips. Group tours and cruise lines will often offer their own cancellation waivers for a very low cost ($40 to $60). Just be aware that this doesn't cover the money you lose if the company itself goes out of business.

The personal effects coverage offered in travel insurance policies may also be redundant. Your homeowner's coverage may already provide coverage for the loss of personal effects when traveling. Of course, you will first have to pay the loss amount up to the deductible. In addition, airlines are required to reimburse up to $3,300 for lost bags on domestic travel. For international travel, the amount is about $1,500. And check your credit card because some cards provide additional lost baggage coverage, protection for car rental losses, and even additional death benefits.

The medical coverage for travelers is another matter. It's advisable to consider additional travel medical insurance to cover emergencies, particularly when you plan to participate in higher risk activities such as skiing, rock climbing, scuba diving, etc. when traveling abroad. If you need emergency medical treatment and evacuation, these costs may not be covered by your existing medical insurance. And even if your existing health insurance policy does provide coverage, you may have to pay for the costs upfront and then seek reimbursement when you are back in the U.S.

Before you buy, here is what to do. First, check with your existing health insurance plan and ask what is covered. If your plan does not cover things like medical treatment and related transportation when you're abroad, then additional medical coverage may be a good idea. Travel medical insurance typically covers medical treatment, transportation, and evacuation, and costs from $25 for a week to about $2,000 for an annual policy. For more information, check out InsureMyTrip, a travel insurance company that represents about 22 insurers.

The bottom line is that the financial loss caused by a cancelled vacation is a risk most people can accept, so trip cancellation insurance usually isn't necessary. Instead, deal with a reputable travel agency and consider a cancellation waiver. But when it comes to medical coverage, definitely look into what is and is not covered by your health insurance and consider buying travel medical insurance.