Should You Pay Extra for Travel Insurance?

No one would consider leaving home, especially for an out-of-town trip, without a major credit card. Thanks to the intense competition in the credit card industry, there are many things you can leave home without—and travel insurance may be one of them.

Take lost luggage, for example. Many credit cards now offer protection for lost, and even delayed, checked luggage that kicks in automatically if you pay for the airline ticket with that credit card. In fact, lost luggage is the last thing you should get travel insurance for: Airlines themselves generally offer sufficient compensation, and your household insurance often covers it anyway. Credit cards simply offer another layer of protection.

There are a lot of other protections available for transportation, rental cars, hotels, health—provided you made the original purchase with that credit card. Benefits vary widely according to issuer and the type of card; verify your coverages with your credit card issuer.

Some examples of travel insurance that you probably already have via your credit card:

• Rental car insurance: It’s usually not necessary to purchase the collision insurance that the rental agent tries to push on to you because your own auto insurance likely covers such damage, but you may discover that your credit card also provides coverage. Many credit cards provide loss and damage insurance for rental cars “in excess of other insurance.
• Travel accident insurance: This provides compensation for accidental death or dismemberment while traveling on a common carrier such as planes, trains, ships, buses—even helicopters, in some cases—if the entire fare was charged to the card.
• Trip cancellation insurance: This protects you against forfeited, nonrefundable, unused payments and deposits when your trip is interrupted or canceled.
• Hotel burglary insurance: This reimburses you for personal property stolen from your hotel or motel room.
• Emergency travel assistance: Some cards provide around-the-clock medical, legal, financial or other emergency assistance when you travel more than a certain distance, such as 100 miles, from home. Read the fine print to find out what services are actually provided. “Assistance” may be a hotline for advice. Coverage almost certainly does not include a medical evacuation, a high-cost item for which you might need separate insurance.

“MasterCard knows that things can go wrong when our cardholders travel and that there are many options out there they can purchase—usually in addition to the cost of their trip—to protect themselves,” says Robyn Cottelli, a spokeswoman for MasterCard. “But all MasterCard cardholders need to do for travel protections like trip cancellation, car rental, and lost or stolen luggage insurance is to use their card to pay entirely for items like airline tickets, car rentals and hotel rooms.”

Extra insurance can make sense sometimes

Travel insurance companies point out that the coverage provided by credit cards can be limited, with numerous exclusions and sometimes capped at certain amounts—say, $1,500 or $2,500 over a 12-month period. Moreover, those benefits may come only with payment of an annual fee or premium rates that end up costing more than travel insurance would.

Damian Tysdal, editor of Travel Insurance Review, says that credit card travel protection for rental cars, lost baggage and travel assistance is similar to a standalone travel insurance plan. If these are your main concerns, he says, the credit card might be enough for you.

But for longer and costlier trip outside the country, you might need additional travel insurance, especially to cover costs of medical treatment or evacuation, he says.

“Credit card travel protection can be nice if you have a loss and don’t have travel insurance. At least you might recoup some of your losses,” Tysdal says. “However, if you’re savvy enough to be educated about travel insurance, the credit card benefits won't satisfy your needs.”

There are some instances where you should consider travel insurance, regardless of the benefits attached to your credit card:

• Complicated itineraries: If you’re planning a trip with several connections or in foreign countries, or you need to meet a cruise departure, you may want to get insurance against cancellations or disruptions that covers the full loss.
• Remote locations: If you’re going far off the beaten track, such as hiking in the mountains or cruising at sea, medical evacuation coverage to make sure you can get treatment for accident or illness could be money well spent. Your definition of “remote” might depend on your tolerance for risk as well as your age and health.
• Exclusions: Standard coverage, whether from a credit card benefit or travel insurance, can contain exclusions, including pre-existing health conditions, hazardous or adventurous activity, cancellations due to reasons other than health, etc. With travel insurance, you may have the option of purchasing a separate rider to cover these exclusions.

One prudent precaution, especially for foreign trips, is to check with your health insurance provider about coverage for medical treatment abroad. The U.S. State Department suggests asking your health insurer some specific questions to determine whether you need extra coverage. For example, you need to find out whether you’ll be returned to the United States if you become seriously ill, if you’re covered for high-risk activities such as mountain climbing and whether your insurer requires pre-authorizations before emergency treatments can begin.

In case your health insurance doesn’t provide coverage that you may want to have, the State Department website has a list of companies that provide medical evacuations and services and another list of travel insurance providers.

Ways to reduce your insurance needs

Frequent travelers have other options. Business travel consultant Nick Kralev says he “never bought insurance.” Kralev, who logged more than 2 million miles in the air as a diplomatic correspondent for the Financial Times and Washington Times, relies neither on credit card coverage nor travel insurance, but rather on the elite status he has attained with the major airline alliances—that gold or platinum designation that carries numerous benefits shielding the traveler from many consequences of cancellations or other disruptions.

Kralev, who now conducts seminars on travel planning for organizations, doesn’t worry about lost luggage because he never checks his luggage: He packs, even for long trips, with a sizable carry-on plus a big laptop bag.

Casual travelers worry about losing their investment in “nonrefundable” ticket if something comes up, but Kralev notes that you don’t really lose everything—just the charge ($150 for a domestic ticket or $250 for international) for changing the reservation. “So it’s cheaper to risk it than to pony up for insurance,” says Kralev, who wrote Decoding Air Travel, a guide to the byzantine world of airlines.

For the occasional traveler who isn’t likely to attain platinum status, however, it probably remains worthwhile to explore the options of coverage from your credit card or taking out appropriate travel insurance.