It is imperative to calculate the trip cost accurately to get the most benefits out of travel insurance.
You should add all prepaid, nonrefundable trip costs associated with the trip to arrive at the trip costs. Include all expenses that are subject to cancellation penalties or restrictions.
What to Include
To arrive at the total trip cost, you should add all prepaid, nonrefundable expenses such as the following:
- All nonrefundable payments, including advance deposits toward your trip, such as for cruise, airfare, etc.
- Prearranged and prepaid ground transportation such as to/from the airport, resort, hotel, etc.
- Nonrefundable fees paid before the departure date, such as for guided tours, retreats, conventions, scuba lessons, etc.
- Nonrefundable tickets, such as for theme parks, theaters, entertainment and special events.
- Any other cancellation penalties in case of cancellation, such as a deposit for a condo on the beach (make sure that you have the rental agreement that shows a penalty schedule and cancellation fees).
In other words, when calculating the trip cost, you should only insure the amount of prepaid expenses for which you would not receive the complete refund if you needed to cancel your trip.
Additionally, you can include the costs that you would still have to pay if you canceled but didn't have to prepay. For example, you booked a hotel and they held your reservation with the credit card you provided but didn't charge anything upfront. If you don't go they will charge for one night, which can be insured.
What to Exclude
There are certain costs associated with the trip that are not insurable and therefore should not be included in the total trip costs. Those expenses would be the ones you would incur while you are on your trip:
- Gifts, souvenirs or any other items that you purchase
- Meals and lodging costs, which were not prepaid
- Excursions or day trips
- Any non-prepaid expenses
There is no point in including the above expenses in your insurable trip cost while buying travel insurance, because if you don't go on your trip, you will not incur those expenses. Therefore, you would not get reimbursed for the same.
Also, you can't insure the flight or other travel arrangements you booked using your frequent-flyer miles, but you can insure the taxes and fees associated with them.
100 Percent of Trip Cost
While arriving at the trip cost to be insured, many people ask whether they should insure the actual prepaid trip cost or the penalty. And the answer depends on what exactly you would like to get covered.
For example, you bought an airline ticket for $3,000, and they would charge you a $200 penalty for canceling the ticket. Should you insure for $200 or $3,000?
Many travel insurance plans require that you insure 100 percent of your prepaid, nonrefundable expenses to be eligible for certain benefits, such as:
- Pre-existing conditions waiver
- "Cancel for any reason" coverage
- "Cancel for work reason" coverage
- Coverage for a financial default or bankruptcy of a travel supplier
To be eligible for any of those important benefits, make sure that you insure 100 percent of the prepaid, nonrefundable trip cost. Never round down. Always round up. For example, if your trip cost is $1,992.50, don't round down to $1,992 or $1,990. Round it up to $1,993 instead.
Also, if you are near the trip-cost age band where prices can change substantially, such as $2,015, don't round down to $2,000 to get into the lower trip cost. Otherwise, any of the above benefits would be declined.
Even if the ticket may be changeable but is still nonrefundable, you must include that in the trip cost to get any of the benefits listed above.
If you are not worried about any of the above benefits, you can insure for whatever trip cost you like in most plans.
However, in addition to trip-cancellation coverage, you must also think about trip-interruption coverage. Trip-interruption coverage is usually 150 percent of the trip cost. Therefore, even if you don't want any of the above benefits, you should still insure 100 percent of prepaid, nonrefundable trip costs just in case you need trip-interruption benefits to come back home for a covered reason.
To get the most benefits out of travel insurance, you should buy it as soon as you make your first payment. If you are not sure of the total trip cost, buy travel insurance with the trip cost you are aware of initially. If the trip cost goes up later, you can get it changed at a higher premium, as long as you do so before the scheduled departure date. On the other hand, if your trip cost goes down, you can get the refund as long as you request the change before the effective date.
In most plans, you can't total the trip cost of all travelers and average them to come up with trip cost per person. However, some plans allow that.
Allocating Trip Cost
There are some trip costs that are per person while others are combined for several people. Therefore, it can sometimes be difficult to calculate the trip cost for each person accurately. The following guidance may help:
- Airline tickets: Use the cost you paid for each person.
- Accommodations: If there are any expenses itemized individually for each person, use them. Otherwise, evenly split among the travelers.
- Cruise: Cruise receipt will show the cost for each person individually itemized. Usually, you pay much higher for the first two people, and the cost per additional persons is much lower. Use the exact cost per person, and allocate to that exact person.
- Rental transportation: Assign the entire cost to the person who paid for the same. Of course, all licensed drivers are still covered as long as they are on the rental contract.
- Meals, entertainment, theme-park tickets, etc.: Use the actual trip cost per person, as long as they are prepaid and nonrefundable.
Even if minor dependent children under the age of 18 years may be insured at no additional premium or a discounted premium, you must still include the trip cost for each traveler.
No Trip Cancellation or Interruption
If you don't want any trip cancellation or interruption coverage, you can purchase travel medical insurance instead.