Hurricanes, volcanos and earthquakes: Is travel insurance really worth it?

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Hurricanes. Earthquakes. Riots. Airline strikes. Volcanic eruptions. There are so many things that could foil even the best laid vacation plans this summer.

Weather experts are predicting a more active hurricane season in 2010, with scientists at Colorado State University in Fort Collins estimating 15 named storms, including four major hurricanes with sustained winds of at least 111 miles per hour in the Atlantic Ocean alone.

And then there's that pesky volcano, which caused the largest disruption to air travel since World War II, forcing European officials to cancel 100,000 flights and costing carriers $1 billion. Geologists are reminding travelers that the last time Iceland's Eyjafjallajokull volcano erupted it spewed ash into the air for two years, raising the specter that Europe's air traffic authority may be faced with canceling more flights this summer.
Those who are considering buying travel insurance now to protect against another flare up of the volcano should be warned that insurers aren't sure if increased activity would be classified as a new event. That means if insurers decide that a bigger ash cloud is part of the eruption that started in early April, travelers with policies dated after April 13 would not be covered.

"No one is coming out at this stage to say one way or another," said Chris Harvey, chief executive of squaremouth.com, an online portal which allows travelers to compare policies offered by 23 providers. "If the ash cloud doesn't go away, if it's added to, it could be the same event. If it goes away, chances are it could be seen as a new event," he said.

If insurers decide that increased activity at Eyjafjallajokull is a new event, then policies taken out up until that date would be covered, he said.

The volcano has sparked an influx of calls to insurers, such as CSA Travel Protection, Access America and USI Travel Insurance Services, from worried travelers who are concerned that a natural disaster may impact their summer travel plans. Many families are heading to Florida, or off on romantic cruises in the Caribbean-- destinations that are smack dab in the path of destructive summer storms.

"Who would have ever thought that a volcano in Iceland would shut down European air space for so many days?" said Carol Mueller, a spokeswoman for Travel Guard. "It reminded people as we get ready to enter hurricane season that this is more likely to trip up your vacation plans this summer."

Should You Purchase Travel Insurance?

Whether or not you should purchase travel insurance for your trip depends on how much you're spending, where you're going and how much money you're willing to lose if something unforeseen happens to derail your plans.

When traveling abroad, it often makes sense to purchase travel insurance in order to protect your investment. Travelers within the U.S. should consider insurance based on how much of a deposit they're required to put down on a future trip. The larger the deposit, and the further out they booked a trip, the greater the risk is that they may have to file a claim.

"Peace of mind is one of the major reasons people purchase travel insurance," said Linda R. Kundell, a spokeswoman for the United States Travel Insurance Association.

Surprisingly, more people file travel insurance claims (one out of six travel insurance policyholders file claims) than those who file homeowner's insurance claims (one in every 14 policyholders files a claim), according to the Insurance Information Institute.

Choosing the Right Policy

When finding the right policy, the devil is in the details. "Policy language is going to vary substantially from carrier to carrier," said Bob Chambers, operations executive with San Diego-based CSA Travel Protection. "CSA sells a bunch of policies through different channels and different distributors -- there's a lot of variety."

Travelers should check for coverage under trip delay, as well as trip cancellation and trip interruption. In each of these cases, the payout might vary depending on the circumstances that prompted them to file a claim, how much they paid for their trip -- and for the policy -- and when they purchased it.

When trip delay coverage kicks in, however, it varies by carrier. Some require six hours, like Access America, to have elapsed before they will honor claims for delays. After the initial six hours, the carrier will cover up to $150 per person, per day for delays, said Daniel Durazo, Access America's director of communications.

Some policies also have a maximum payout that they will provide to travelers for travel delays. Most carriers provide up to $150 or so per person, per day, for hotel, food and transportation costs incurred during delays. USI will pay out from $750 to $1,500 total, depending on what type of policy a traveler purchased, said Kathy Khalik, the company's vice president of operations.

USI's travel delay coverage kicks in after a passenger has been stuck for more than 12 hours. After a traveler maxes out their trip delay coverage, trip interruption coverage may kick in if it's included on the policy, Khalik said.

Travel Insurance Tips

Travel insurance typically costs up to 7% of the entire trip, depending on the age of the travelers. Policies average about $200. Experts advise that travelers purchase comprehensive policies that cover trip cancellation, trip interruption, travel delay and missed connections, stolen luggage and medical emergencies.

If you have a pre-existing medical condition, buy travel insurance within 15 days of making a deposit on a trip to ensure you receive full coverage, Mueller said. The time limit is in place to help insurerers spread the risk among more policyholders.

Most carriers cover cancellations forced by weather, like hurricanes or the recent volcanic eruption. But, insurers say that the most common reason for travelers to cancel a trip is illness. Three in four claims for trip cancellation insurance are filed due to medical issues, Mueller said.

"What people really need to think about are the highly likely events that do force people to cancel," she added. "If you become sick and you can't travel. If you have a death in the family and you can't travel. Those are more likely events that can happen."
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