Salvaging The Fare When A Trip Is No Go

Six days after Tom Olson of Pittsburgh shelled out thousands of dollars for a cruise to Alaska, the Exxon Valdez spilled millions of barrels of oil into Prince William Sound. Such an event could turn a dream vacation into a nightmare, but Olson wasn't worried: He had spent an extra $100 for trip-cancellation insurance. "When you've invested that much money and planning," says Olson, who took the cruise anyway, "you want the confidence of being able to cancel."

Travel insurance policies can protect holders of nonrefundable travel against illness and other emergencies. But determining whether the protection is worth the premium requires you to know what coverage you have and what the policies really cover.

That's hard, given the mountain of options hawked by travel agents, credit-card companies, or direct mail. Baggage insurance, for example, covers lost luggage. Trip-delay policies pay up if flights are late or you miss a cruise connection. Medical-evacuation insurance can whisk you home for treatment.

But agents say travelers are most interested in cancellation insurance--especially for expensive foreign trips, prepaid tours, or cruises. It can be invaluable if you're forced to cancel for a covered reason--a natural disaster, in Olson's case. But, advises Lee Granger of Carlson Travel Network, "it's important to read the fine print."

CHRONIC COMPLAINT. To be valid grounds for a cancellation claim, for example, a disaster at home must be major--such as a fire or flood. Or if you hold a ticket on a bankrupt carrier, most policies won't reimburse you for lost airfare if the airline stops flying before or during your trip. "And remember, you're not covered if you simply change your mind or your boss says you can't go," warns Beth Godlin, president of the travel division at Access America, a travel-insurance firm.

Medical problems are trickier. Travel policies usually don't cover cancellations due to long-term illness or preexisting conditions treated within 60 days of buying the policy.

Cancellation insurance alone costs 5% to 6% of the coverage amount. But you'll often pay more, because travel agents push comprehensive policies costing up to $80, which bundle several types of coverage. Cancellation waivers giving customers the right to back out, sold by travel providers but not guaranteed by insurers, run as high as $100 per person.

Before it's here, it's on the Bloomberg Terminal.