Explaining Travel Insurance – What You Need To Know

Suppose you’re booking a flight to your next destination. Nowadays, most flight booking channels will ask if you want to include travel insurance in your package. They provide a link to terms and conditions that explain how their insurance works and WHY you should consider it. But if you are like many travelers, you skip the travel insurance option (to save money). But are you truly saving money, or could you be opting out of something that you truly need during your trip?

TRAVEL INSURANCE 101: HERE’S WHAT YOU SHOULD KNOW

A trip is a huge investment. Whether you are going hiking or on a cruise, people often spend anything from $500 to $5,000 a week when on vacation. But it’s not just tourists who invest a lot in their trips. People travel for tons of other reasons – studies, medical visits, business, work, etc. And in all these cases, you spend a lot of money on visa applications, flights, hotels (or other accommodation), tours, and more. As such, it would be right to classify your trip as a significant monetary investment.

Looking at it this way, it’s easy to see why insuring it would be a good idea. Take the example of a house. When you buy one, you know that some things can go wrong – floods, earthquakes, fires, faulty drainage that ruins your floor, etc. And to get ahead of these possible risks, you get home insurance. As such, if anything goes wrong, the insurance company foots the bill. The same applies to any other investment you make – your business, car, etc. Travel insurance works the same way. It is a way to insure the investment you have made in your trip and thus works like a typical insurance cover.
This guide explains how travel insurance works and what you should know before making this decision.

PRINCIPLES OF TRAVEL INSURANCE – ANALYZING THE FINE PRINT

All insurance covers have principles that govern how they work. These guidelines protect you (the person taking the insurance) and the company providing the insurance to ensure that the outcomes are fair and legal. So, what can you expect with travel insurance?

1. Utmost Good Faith.

You and the insurer must be honest in your dealings. Anyone found to be guilty of misrepresenting or hiding facts can lose their insurance. So, how would this work in travel insurance? Let’s assume that you take a travel insurance cover to insure your trip for 14 days, yet your trip is a month long. On the 16th day, something happens when you are no longer under the cover. If you tried to lie that the event occurred when you were still under the cover and the insurer found out, they would not be liable to pay. It is thus important that you are honest in your dealings and disclose all relevant information without trying to take shortcuts.

2. Insurable Interest.

You may have noticed the emphasis on the fact that your trip is a monetary investment. But why is this important in the eyes of travel insurance? Well, for insurance to have any effect, you must have an insurable interest, aka financial interest, in what you want to insure. For example, when you insure your flight bookings, you are doing so to protect the funds you have invested in your booking. You cannot take out travel insurance if you do not stand the risk of incurring a financial loss if something goes wrong on the trip. And to ensure this, travel insurance companies lay out the events they can insure to help you make the right choice.

3. Indemnity.

Do you know why insurers work with valuers, aka appraisers, before insuring anything? They want to know the actual value of an investment so that they know what to pay if something goes wrong. For example, if your car is worth $15,000 and you have insured it against theft, you will get an equivalent $15,000 if the insured event occurs.

The same applies in travel insurance – it restores you to the same position you were in before something went wrong. The idea is not to profit from it, nor should you undergo a loss. For example, if you insured a flight from Los Angeles to Italy and it gets cancelled, the role of the travel insurance is to help you book a similar flight (seat class, baggage conditions, and other factors considered). You can think of your insurance as the factor that restores balance in your world if something goes wrong.

4. Contribution.

People sometimes take out several insurance policies for the same investment. Some do this to play it safe and cover almost all insurable events. Others do this to get more money if something goes wrong. If you plan on using such a strategy when insuring your trip, here is something you should know. All your insurance companies will work together to contribute to the payable amount.

For example, if you have a medical cover from three companies, they will all contribute to the payment proportionately, ensuring that you do not claim the full amount from each company. It is thus not a good idea to cover the same risk using multiple companies, as you will not get more than what one company would offer. If you have questions regarding the reliability of a travel insurance provider, you are better off choosing one you can trust and that can cover the risk you want to avoid.

You may wonder how insurance companies make their profits besides the money they get from people who never file claims. Well, it’s quite an interesting strategy. When the company covers your loss, they have the right to pursue the party that was responsible for it.

Take the example of when someone damages your car – your insurer covers the loss, then pursues this person (or their insurer) to cover the same. This strategy also works in travel – for example, the insurance company can hold a booking platform liable for a loss.

5. Loss Minimization.

Did you know that you also have a responsibility to reduce the risk of insured events? Let’s use the example of your vehicle. Suppose you insure it against theft. You cannot then start parking it in unsafe places, leaving it unlocked, or doing things that increase the risk of theft. Doing so would not only be unethical but would also contravene the insurance terms and conditions. If the insurer finds out that you did not take reasonable steps to avoid or reduce such risks, they have the right to argue for and hand out less compensation. So, even if you get insured for a flight, that does not mean you can show up late and expect the insurer to pay for your errors. You also have the duty to do the right thing.

6. Proximate Cause.

Life is unpredictable, which is something that insurance companies consider when providing policies. Let’s use a car as an example. Suppose you are driving on the highway and another car hits you from behind. Upon inspection, it becomes clear that the other car had faulty brakes that resulted in the accident. In that case, the driver will be liable as they should have serviced their car to prevent such an accident. Proximate cause, also known as Causa Proxima, allows insurers to only be liable for losses that have been caused by the insured event. So, if multiple reasons are to blame, the nearest cause is what matters – if it has been covered, then the insurer will cover you. Now, let’s consider this in a travel insurance setting.

Suppose you have taken out travel insurance to cover you against trip cancellation due to bad weather. If the airline cancels your flight due to bad weather, the insurer will have to pay you. But if they cancel it due to a mechanical issue, that is not the proximate cause, as it does not relate to what you have insured – they are thus not liable.

A FINAL WORD ON TRAVEL INSURANCE

It’s important to understand how these factors work together in ensuring fairness and legality in insurance policies. You must also determine how to approach the right travel insurance based on these principles to ensure you remain protected when traveling.