We’ve heard that question time and again. Should I buy the travel insurance offered by the tour operator or cruise line? Most consumer advocates tell you not to, but why do they?

Here is a case right on point! Just a little while ago a tour operator from Worcester, MA by the name of Voyageur Educational Tours went bankrupt and ever since I’ve been reading articles about student groups from all over the US that won’t be going on trips that were already paid. One item I keep reading about is that even though client’s bought the travel insurance that was offered by Voyageur they probably won’t be covered!

According to one client:

I was sold optional insurance and I can’t identify the insurer. Guess Voyageur pocketed that along with my other $4200.00. I paid the extra $600 for single accommodations! I see keeping my insurance payment as criminally fraudulent.

Why isn’t it covered? Because travel insurance offered through a tour operator or cruise line does not contain “default/bankruptcy” coverage! Just that simple. Coverage is either self-insured by the tour operator or is provided by a licensed insurance company. If it’s self insured by the tour company than the funds that would be available to pay claims are general funds of the tour operator and would be tied up the second that the bankruptcy application was filed in court. More so the funds would be used to pay secured creditors first before any unsecured creditors(travelers). Where the insurance plan is underwritten by a licensed insurance company than it’s either not a “covered reason” or the plan specifically excludes the bankruptcy of the entity that sold you the insurance policy.

Moral of the story - always buy your travel insurance from a third party and make sure it includes default/bankruptcy coverage.

Unfortunately, there has been some misinformation in print and on the net during the past couple of days that claims “for most travel insurers, April 24 was the date the swine flu outbreak became what the industry calls a “foreseen” or “known event” because of widespread media attention” and therefore coverage would not apply for policies purchased after that date. As an analogy it’s claimed that you should “Think about it like hurricane insurance…If you buy coverage before a storm receives its official name, for example, you are covered for losses relating to that storm, but not if you buy afterward.” WRONG!!!

How can you compare a traveler who gets sick because of the flu with a hurricane that has been named? I think what the “expert” meant was that it would now be foreseeable and therefore not covered. However, how can you say that because only a few hundred people have contracted the swine flu that it is now foreseeable that 300 million Americans will now become sick with it and therefore travel insurance won’t cover you?

Just goes to show you that you can’t believe everything that your read regardless of the source.

Recently there have been several questions raised about travel insurance policies and how they would react to Swine Flu. They basically fall into two categories:

1. What happens if I have to cancel my trip due to the threat of swine flu?

The answer to this first question depends on the company and plan that you’ve used. Basic trip cancellation coverage is what is referred to as “named peril” coverage where only those perils that are listed by the insurance company and not limited by the company’s exclusions are covered. Most companies refer to these as “covered reasons”. Under the basic trip cancellation/interruption coverage there are no benefits if you cancel due to the threat of avian flu because the threat of sickness is not listed as a covered reason. Most policies include being “quarantined” as a covered reason and would provide coverage if one was forced to cancel their trip due to it however; some companies exclude an “Epidemic” and would not cover being “quarantined” if it was caused by an “Epidemic”.

Under the basic coverage benefits are limited or non-existent however, several companies offer an option that you can add to the basic coverage for “Cancel for Any Reason”. Generally this allows you to cancel your trip for any reason that is not otherwise covered. In order to qualify for this coverage you have to buy your insurance usually within two weeks after your first trip payment, you have to insure your trip for it’s full pre-paid value, and if you cancel your trip for a reason that is not otherwise covered than you have to do so at least 2 days or more prior to departure. “Cancel for any Reason” also requires a “co-payment” of between 10 to 50 per cent of your trip cost depending on the plan that you’ve chosen.

2. What coverage do I have if I contract swine flu?

The answer to the second question is clearer. It now becomes a sickness and the client could be eligible for benefits under the medical expense, trip cancellation, trip interruption, travel delay, or emergency evacuation coverages found in most policies. Again the plans that exclude “Epidemic” would probably not provide coverage if it could be proved that it was the result of an “Epidemic”.

Most companies are discussing the issues concerning Swine Flu and how it could be handled. It is a delicate balancing act for the underwriters between the public need and the possibility of a single event causing of catastrophic losses. Will they respond and change their policies? We can only wait and see.

We just learned today that the Colorado Insurance Department issued a “Cease and Desist” order on March 24, 2009 to Prime Travel Protection and/or Jerry and Christine Watson.

I first wrote about Prime Travel Protection on January 29, 2009 after they announced filing for bankruptcy and after news that the Florida Insurance Department was investigating their activities in Florida and those of 3 travel agencies located there that had been selling their “protection” to clients.

I’ll write more about unlicensed travel insurance products later but for now congratulations to the Colorado Insurance Department for a job well done.

Happy Birthday to The Travelers Insurance Company - 145 years old today. Why is it important? Because it was on April 1, 1864 that The Travelers opened it’s doors in order to offer travel insurance to people traveling - hence the name The Travelers. Just imagine, in the middle of the Civil War, businessman James G. Batterson has the forethought to start an insurance company for the purpose of insuring people traveling. Well done Mr. Batterson!