There is extremely limited coverage for pandemics such as Coronavirus/COVID-19 in travel insurance policies that don’t include cancel for any reason. As a result, we are highly recommending that travelers invest the extra money for better coverage. The limitations of travel insurance pandemic coverage have been brought into stark relief in the last months, and this article explains the limits in how travel insurance covers pandemics and why cancel for any reason coverage is your best bet.
Let’s start by telling travelers who live in New York state the bad news. New York state law prohibits the sale of cancel for any reason policies because they do not consider this type of coverage insurance, but instead a form of gambling. The insurance company is calculating the odds of a traveler canceling under the policy rather than insuring an actual unknown risk. Even though Governor Cuomo said in a speech that New Yorkers should be able to buy these policies to protect their travel investment during a health crisis, the insurance laws have not yet been changed and it’s unlikely to be a major priority for lawmakers at the moment. However, if you live outside New York State, you can buy a cancel for any reason plan.
If you purchase one of the policies in the “Best Category” on the TripInsurance.com website, these include Cancel for Any Reason coverage (CFAR). This provision allows you to cancel for an uncovered reason, and collect 75% of your cancellation penalties. If you cancel for a covered reason like a covered medical problem, or a death in the family, the plans pay 100% of your cancellation penalties for canceled trips. The Cancel for Any Reason (CFAR) coverage gives you cancellation coverage for any reason even if the plan does not specifically state the reason on its list of cancellation provisions. You can change your mind and decide not to go on the trip, and the insurance will pay 75% of your cancellation penalties.
Conventional or basic travel insurance policies, like the ones in our better and good categories don’t include CFAR. Their coverage is limited in what it can cover for a pandemic. Some travel insurance buyers don’t read through their policies and assume that whatever their reason for cancellation if they cannot go on the trip, the insurance should cover their cancellation penalties. There is no national standard for travel insurance policies, and the travel policy language is different from policy to policy.
There are very specific provisions in every travel insurance policy that cover cancellation, such as losing a job or a terrorist attack. If it is not specifically listed in the policy, the claim will be rejected by travel insurers. Each policy is written to cover risks and exclude others. In this way, the travel insurance companies balance the coverage provided with a need to keep the cost of the travel insurance coverage under control. Without these limits, the price of insurance would be too high. The perfect example of this is that every travel insurance policy sold by a cruise line or airline specifically excludes coverage for bankruptcy of the travel supplier. The insurance company does not want to accept the risk for widespread damage, such as insuring cancellation for a cruise company’s entire traveler list if they go out of business. But if you purchase a plan on TripInsurance.com, the insurance company will cover the risk of bankruptcy of a travel supplier because the risk is spread over many different travel suppliers for the travelers purchasing on the site.
Here are some of the relevant virus-related claims that are covered by most standard travel insurance products:
- Death of a close family member due to Covid-19
- Traveler gets sick from Covid-19 and cannot travel
- Traveler is quarantined
- Traveler’s close family member gets sick from Covid-19 and they must stay to provide care
- Traveler gets laid off from work
- Complete shutdown of all airline service to the traveler’s destination
- Cruise or airline company declares bankruptcy
- Your boss cancels your pre-planned vacation
Here are the conditions that are NOT covered by most conventional travel insurance policies:
- CDC travel warnings due to the pandemic
- A country denying travel access to Americans
- Mandatory quarantine on arrival at your destination, even if the quarantine lasts longer than your planned vacation.
- Fear of traveling
- If you are in a high-risk category and your doctor is advising you not to go. (Note this is not a treated medical problem that prevents you from going, this is your doctor advises you to avoid catching the virus.)
- Cruise or tour was canceled, but not your flights to the cruise. (It doesn’t matter whether the cruise company canceled or you canceled.)
You will notice that the disruptions in the travel industry after the World Health Organization declared the coronavirus outbreak a pandemic are not covered by general travel insurance. A cancel for any reason policy would allow you to cancel for any of these reasons, including virus-related cancellations and offer payouts of 75% of the trip cancellation penalties. This is why it is worth it to add the cancel for any reason option, especially for international travel.
When you cancel your trip, you are not required to take travel credits
Even if you are given travel credits by your travel agency or travel provider (this can be different from your booking site) for your airfare or cruise, you can in the claims process certify that you will not use the travel credits, and a cancel for any reason policy will pay 75% of the travel credit’s value in cash. In our article you can read about the best ways to recover your vacation investment.
You must declare the total trip cost that is subject to cancellation penalties when you buy the plan. Many people only insure the deposits they have paid to date on their vacation, and then increase the trip cost in their insurance plan as they make additional payments or additional travel plans. When you purchase a cancel for any reason plan, you must declare the total cost of the trip that is subject to cancellation penalties, not just the installments you are making. This is a common rule of every cancel for any reason plan on the market. If you are buying a $5,000 cruise, but only pay a $500 deposit, you must declare the $5000 cruise trip cost. This could result in you paying more for the insurance than your initial deposit, but this is necessary to maintain your cancel for any reason benefits. The insurance company could refuse your cancel for any reason claim if you do not purchase the policy for the full trip cost that is subject to cancellation penalties.
That sounds confusing because, from your point of view, the trip cost that is subject to cancellation penalties at the time of booking would be what you have paid – the $500 deposit. But the insurance company sees this differently. They want to avoid people insuring only their $500 deposit, and then the travelers pay additional deposits without increasing their trip cost in the policy. The traveler then finds out that they need to cancel for an uncovered reason, and calls up the insurance company to increase the insured trip cost in the policy at the last minute and then files a claim. They essentially are buying the insurance only when they know they are canceling, which is insurance fraud. To avoid this, the insurance companies force the traveler to buy the insurance up-front for the entire trip cost that ultimately will be subject to cancellation penalties – the entire cost of the deposit-financed trip.
You only need to declare the trip costs that you know at the time you purchase the plan
If you have only booked the cruise or tour, but don’t yet have the rest of your travel plans arranged, you only need to declare the known trip costs that are subject to cancellation penalties. When you make the additional plans like your plane tickets, vacation homes, or vacation rentals, call the insurance company and increase your trip costs. On TripInsurance.com, you can email us with your new trip cost total or your adjusted travel dates for your cancel for any reason plan (CFAR), and we can adjust the plan for you. You just pay the difference in the premium.
You must purchase a CFAR plan within 14-15 days of making your initial deposit.
Do not wait to buy your travel insurance, whether you are going to Los Angeles or an exotic, foreign destination. You are only eligible for cancel for any reason coverage, and for a pre-existing condition waiver if you purchase the travel insurance within 14-15 days of making your initial deposit.
If I am using travel vouchers, when is my initial trip deposit date?
This is a difficult question because the insurance company’s claims department makes the determination. The issue is whether your initial deposit is the date of the rebooking, or the day you purchased the original trip that is now available to you as a travel credit. The insurance company may consider the original date you made the deposit for the original trip to be your initial deposit date. It is worth double-checking this with the insurance company during the 10-day free look period after you purchase the policy. (Buy it first – it may take them some time to answer and you do not want to miss that window.)
For the TripInsurance.com website, we have already checked with the claims department for US Fire and Nationwide. They tell us that if you purchase the cancel for any reason travel insurance policy within 14-15 days of your rebooking, they will consider the rebooking date to be the new initial deposit date for the trip. You must have proof that is when the travel credits were applied and the trip was rebooked.