Most travel insurance policies include Cancellation cover but how do you know if you need it?
To decide, it’s important to make sure you understand what the Cancellation section covers and how it responds in the event of a claim.
Did you know that the Cancellation cover starts from the time you purchase the policy?
For this reason, it is important to make sure you arrange travel insurance as soon as you start paying for any part of the trip. When you purchase an airfare or pay deposits for tours, accommodation or car hire, you are financially exposed if you have to cancel the trip.
If you are taking a long or expensive trip, you may be planning and booking many months in advance. Here is where Cancellation cover comes into its own. When taking a policy, you will be asked for the date you will be leaving home to start the trip and the date you will return. This is the trip period. However, the Cancellation cover starts immediately after you purchase the policy and continues until you leave home to start the trip. Life can be unpredictable at times and although you are looking forward to the trip, something unexpected may happen which results in the trip being cancelled. So, if you are making trip bookings many months in advance of your departure date, provided you arrange travel insurance, this period of time will be covered for cancellation risk.
If your booking is a spur of the moment decision and you’re travelling the next day, Cancellation cover may not be high on your priority list. However, did you know that in some policies the Cancellation cover becomes a Curtailment cover after you start the trip? Curtailment simply means “cutting the trip short”. So, if you have to curtail the trip (eg return home earlier than expected) you’re covered for additional costs incurred to return home early and the value of pre-booked arrangements which were forfeited – subject to policy terms and conditions, of course!
So what sort of cover is provided under the Cancellation section?
The Cancellation cover under most travel insurance policies is what we in the industry call “Defined Events”. This type of cover defines the Events which will trigger a claim. Many of us have home and contents insurance and examples of Defined Events under a household policy would be Fire, Storm, Theft etc – these are the “Events”. For travel insurance Cancellation cover, the Defined Events tend to be things like death, accidental injury or illness of you, your travelling companion or relative, natural disaster, redundancy etc. For Defined Events Cancellation cover, an “Event” like accidental injury of the policyholder or a natural disaster that prevents the policyholder from travelling would need to occur to trigger a payable claim.
How does the Cancellation cover work if you need to claim?
If you need to cancel before departure and the “Event” which caused you to cancel the trip is covered, the policy will compensate you for the irrecoverable value of the forfeited trip. This may sound complicated but it’s not. What this means is that you are covered for the non-refundable portion of the trip. So, if your airfares are 50% refundable, you can claim the 50% which is not refundable. If your accommodation is fully refundable, you cannot claim this. If your tour is 100% non-refundable, then you can claim the full value of the tour. Insurance covers you for your out-of-pocket cost / loss. You can’t profit from insurance so if you can get a refund, you cannot also claim for the amount refunded.
If your policy also covers Curtailment (ie post-departure cancellation and early return), you are covered for the additional cost incurred to return home early (eg the cost of reticketing your airfare for an earlier travel date or the cost of a new airfare if you can’t re-ticket your original return flight for an earlier date). The key here is the word “additional”. If you can’t reticket your original return flight and have to buy a new airfare, you can only claim the additional fare. You can’t claim the additional airfare and also the unused original airfare – this is because you were always going to incur the (original) return flight cost as part of the trip. Insurance covers you for unforeseen, unexpected and unplanned expenses – you can’t claim a cost you were always going to incur as part of the trip.
If you have to curtail, you’re also covered for the value of any pre-booked travel arrangements which were forfeited due to you returning home earlier than scheduled. Again, if there are any refunds available, you can only claim the difference – that is, whatever you can’t get back from the provider/s.
What’s not covered?
The cover provided by the Cancellation section is always detailed in the Product Disclosure Statement and policy wording so it’s important to read this to ensure the cover suits your needs.
There will always be exclusions and those which are most common in travel insurance polies include:
- Any event which is not one of the Defined Events (unless the policy provides “cancel for any reason” cover).
- Disinclination to travel. If you change your mind and simply don’t want to go, this is not covered.
- Failure to arrange appropriate travel documents. If you don’t have the right visa and wont be allowed to enter the destination country, your travel insurance policy wont help.
- Loss of enjoyment. Sadly sometimes the trip doesn’t live up to expectations and unfortunately this isn’t a situation that is covered by travel insurance.
- Circumstances known to you at the time of purchasing the policy and which could reasonably be expected to result in the trip being cancelled. If you are planning a ski holiday, break your leg the day before departure and then purchase a policy, this wont be covered. Similarly if a volcano erupts at the destination and ash cloud closes the airspace, there’s no point trying to organise a policy to cover you if your trip is cancelled as a result. Both of these examples are like shutting the gate after the horse has bolted – something which will stop you from travelling happened while you were uninsured.
Our hot tip?
Add up the total value of your trip – this is your maximum exposure to financial loss if the trip is cancelled. Many providers offer a sliding refund scale which means that the closer you get to departure before cancelling, the lower the refund they will provide. Make sure you purchase a policy which provides adequate coverage for cancellation. If the non-refundable value of your trip is $20,000, buying a policy with a $5,000 Cancellation benefit may not be such a great idea!
Final words … please read the policy to make sure you understand the scope of cover provided and if you have any queries, make sure you contact your chosen provider to clarify.
Got questions about trip cancellation and travel insurance? Why not call us on 1300 819 888 or send an email to info@goinsurance.com.au