Travel Supplier “Waiver” plans – Are they Legal?

Some of them might not!

What are cancellation “waivers”? They are generally an option offered by some travel suppliers where, in exchange for paying an additional fee, they will “waive” their cancellation penalty if the traveler has to cancel their trip. Some of the ‘waivers” are unconditional and offer coverage for any reason and some “waivers” are conditional upon some future event happening that causes the traveler to cancel the trip such as a family member becoming sick or injured.

In the past regulators were quiet on these plans however,
Circular Letter No. 24 (2006)that was published by the New York Insurance Department on December 29, 2006 addresses this issue and states:

Unconditional waivers that permit the ticket purchaser to cancel the trip for any reason are not insurance because the cancellation of the trip is not dependent upon the happening of a fortuitous event. The ticket holder could simply choose not to go on the trip. However, waivers that are not unconditional and that provide coverage upon the happening of fortuitous events are insurance. Thus, any travel agent or other person making or proposing to make such a waiver would be doing an insurance business, as defined by N.Y. Ins. Law § 1101 and would be required to be licensed as an insurer pursuant to N.Y. Ins. Law § 1102.

Generally all of the waiver plans being offered by travel suppliers are provided by them without a licensed insurance company to guarantee their benefits.

  • What does that mean to you, the traveler? It means that the normal consumer safeguards that provide a safety net for customers of licensed insurance companies would not apply to you.
  • What does it mean if you are a travel agent who helps enroll a client into a “waiver” plan? It means that you might be in violation of State Law concerning the sale or representation of insurance and if the travel supplier fails to provide the benefits promised you might be held liable for the travel supplier’s failure.

Even though this opinion is from the New York Insurance Department, most other states would probably agree with them that if a “waiver” is conditional than it is insurance and subject to their state insurance laws and regulations and if it’s unconditional than those laws would not apply. Either way it’s best that you avoid them. Many consumer advocates recommend against buying waiver coverage from a supplier because:

  • coverage is limited to pre-departure cancellations;
  • they don’t cover supplier(their own) default of bankruptcy (no surprise here); and
  • they are usually too expensive for the benefits promised.

Best solution is to buy travel insurance offered by a real insurance company, not a travel supplier pretending to be one.

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