Travel insurance provides many valuable coverages such as trip cancellation, trip interruption, emergency medical coverage, baggage, travel delay and much more.

In trip-cancellation coverage, supplier financial default coverage is very important.

Many people pay thousands of dollars months in advance for their trip. However, before they can go on a trip, if the travel supplier were to stop their business operations, they could obviously not go. In that case, the prepaid, nonrefundable trip expenses could be reimbursed by travel insurance if it has supplier financial default coverage.

Definition of Supplier Financial Default

Supplier financial default occurs when a travel supplier completely ceases business operation due to financial circumstances.

It is important to understand that it is not the same as bankruptcy. Bankruptcy means a company is seeking legal protection with a goal of working out their financial problems. That does not necessarily mean that they have ceased all operations.

While some travel-insurance plans include bankruptcy coverage with financial default, others don't.

Additionally, if the travel supplier is already in bankruptcy at the time of purchasing travel insurance, you are not covered for supplier financial default. Supplier financial default coverage includes travel suppliers such as airline, cruise line, hotel, tour operator, rental car company, condominium, railway, bus company or other travel suppliers. However, it does not cover the financial default of the travel agency.

Coverage conditions

Even though the exact conditions may vary for such coverage, the typical conditions are:

• Supplier financial default is typically a time-sensitive benefit. You must purchase travel insurance within certain days (varies from seven to 30 days) from your initial trip deposit to supplier financial default coverage in travel insurance.
• You must buy the travel insurance for your entire trip duration.
• You must insure your full prepaid, nonrefundable trip costs. Never round down, but always round up the trip cost. If you are not sure of your total trip cost initially, buy the insurance for the higher trip cost. If your trip cost eventually comes lower than expected, you may be able to get a refund, as long as you have not departed on your journey.
• Most travel insurance plans that provide such coverage have a waiting period after the effective date, usually seven to 14 days before such coverage goes into effect. Therefore, if your travel supplier defaulted three days after purchasing the insurance, there will be no coverage.
• Travel insurance companies usually provide financial-default coverage only if the travel supplier is included in their approved list.
• You are unable to make alternate arrangements for your travel plans. If you can make alternate arrangements, your benefits would be adjusted according to the specific terms and conditions of your policy.

Buying travel insurance

Travel insurance can be purchased either from a cruise line, travel agency or a third-party insurance company.

However, it is always advisable to purchase travel insurance from a third-party insurance company. There are many advantages of buying in this manner. However, an important advantage is supplier financial default coverage.

If you buy the travel insurance from a travel supplier, and if they are in financial default, they obviously can't provide you any coverage for the same.