How Travel Insurance Works

Types of Travel Insurance

A weather report like this one begs for cancellation insurance.
A weather report like this one begs for cancellation insurance.
© Fochesato

There are three main types of travel insurance: medical coverage, trip protection and luggage or car rental protection.

Medical Coverage

A medical/health policy covers medical and dental expenses incurred because of injury or illness. If you fall into a sewer in Paris, you'll be glad you bought medical coverage.

Then there's medical evacuation coverage, which covers you in case you need to be transported to a hospital. If you're injured in a remote area and need a helicopter, it'll be extremely expensive, and you'll really second-guess your decision not to get evacuation coverage. It's typically included under medical coverage, but can also be purchased as a stand-alone policy.

You can also purchase an accidental death and dismemberment policy. This covers you on your flight over, back and at all times on the vacation. It acts like any life insurance policy, paying your beneficiary a set amount in the event of death.

With all medical policies, it's vital to check their rules for pre-existing conditions and age limits. Some policies have substantial price hikes for seniors.

Trip Protection

This coverage is broken down into three parts, beginning with cancellation coverage. In the event that you need to cancel your trip due to illness, your prepaid expenses will be reimbursed. It also allows cancellation if a family member is sick or dies.

Delay coverage handles transportation delays. If your hometown airport is snowed in and there are no flights going out for several days, your prepaid hotel expenses are covered.

The last type of cancellation coverage is trip interruption protection. If you get sick while away, or a family member falls ill or dies, you'll want an interruption policy. It also covers your trip if it's cut short due to bad weather, travel company bankruptcy, an airline strike and even jury duty.

Most trip protection policies can be purchased for a single trip or an annual multi-trip basis. People who do a great deal of traveling or plan an "around the world" vacation might be interested in a multi-trip policy.

Luggage/Car Rental Protection

­This covers your rental car in the event of an accident and your baggage and personal items if they're lost, damaged or stolen. This kind of policy usually doesn't cover loss or damage in flight, and some of your personal items may be too expensive to cover. It's very important to read the fine print about what's covered and under what circumstances. You should also check with your personal auto insurance and credit cards -- they'll often cover your car rental.

With all of the above policies, look for ones that offer travel assistance in addition to the monetary coverage. This assistance service usually provides a 24-hour phone number that you can call to find everything from a reputable local doctor to a translator. They can also assist you with lost or stolen passports, wire transfers and even local legal representation.

In the next section, we'll give you some tips for getting good deals on travel insurance.