Travel insurance: 'Beware' doesn't mean 'don't buy'

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“Flyer Beware” is the heading of a new report on travel insurance, not “Don’t Buy.” Although some writers have picked up on the report as a recommendation to avoid travel insurance, generally, that really isn’t the case. Instead, the report focuses on the insurance policies that airlines and online travel agencies (OTA) offer automatically during the buying process for air tickets. The report was compiled by the office of Sen. Edward J. Markey (D-MA), and what it really says is that those policies, typically offered as an “opt in, opt out” choice after you’ve selected a flight, may not be a good buy: They are often overpriced, more restrictive, or both, than the traditional travel insurance you can buy through a third-party insurance agency.

The Markey report notes that the typical airline and OTA booking system is strongly biased to encourage travelers to buy the insurance offered as part of the booking process. You’ve seen those pages as you scroll through the process: In effect, they say “you really should buy this insurance” and “you take a big risk by declining it.”

Among 16 largest U.S. airlines and OTAs, only Southwest does not offer such insurance. Presumably, that’s because Southwest travelers don’t need it: Southwest travelers can cancel or change a ticket without paying the punitive fees the other airlines charge.

Among the other 15 outlets, 14 sell similar policies from either Allianz or AIG insurance. Typically, those policies are more-or-less standard trip-cancellation, trip-interruption bundled policies that also include limited medical and other miscellaneous benefits. Typical policy prices average about 6 1/2 percent of the ticket price for domestic trips and 7 percent for international trips. Those typical policies are very restrictive in the range of “covered reasons” included, meaning that claims have a high likelihood of denial.

The report clearly states its reason for the “Beware” heading. It notes, “A search of third-party travel insurance comparison websites such as Squaremouth.com or Insuremytrip.com shows the wide availability of similarly priced policies with more robust and flexible coverage.” The idea of insurance isn’t a “beware” situation, it’s the price and coverage of the policies the airlines and OTAs sell.

In examining the reports results, I found that the benefits the opt-in policies were likely to be adequate to meet the needs of most travelers. But I also confirmed the report’s finding that third-party policies generally provide better coverage at lower prices that range from four to six percent of total trip costs.

Thus, the real takeaway from the Markey report is not that you shouldn’t buy travel insurance at all. Instead, the primary conclusion is that you probably shouldn’t buy the travel insurance your airline or OTA pitches during the booking process. Instead, find a better deal through a third-party agency. The main exception to this conclusion is for very senior travelers age 70 or over. Prices for most third-party travel insurance policies increase with increasing age — and they increase very rapidly above age 70. I spoke with representatives of both AIG and Allianz, and both assured me that the policies sold through airlines and OTAs do not include any maximum age cutoff.

The insurance situation is yet another instance of airlines’ shooting themselves in the foot. There’s a reason airlines assess outrageous ticket change fees, starting at $200 for the big airlines and going well over $500 for some tickets: Those fees act to minimize use of cheap nonrefundable tickets by business travelers, and that’s actually good for leisure travelers. But they also create real pain-points for the few leisure travelers who suddenly have to cancel a trip, while they’re already stressed by an illness or accident in the family. Because airlines stonewall those customer complaints, consumers turn to Congress for relief — which, if enacted, would result in massive whining by the airlines. Instead of whining, they could develop cancellation-only insurance, based strictly on medical reasons and with lenient exclusions, that would sell for low enough prices that consumers could blame only themselves for costly cancellations.

(Send e-mail to Ed Perkins at [email protected] Also, check out Ed’s new rail travel website at www.rail-guru.com.)

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