Travel Insurance: Understanding Coverage & How It Works

Updated • Mar 11th '25

What Is Travel Insurance?

Travel insurance is a financial safety net that protects travelers from unexpected events before and during their trip. It covers expenses related to trip cancellations, medical emergencies, lost or delayed baggage, travel disruptions, and other unforeseen situations that could impact travel plans.

By providing financial assistance and support, travel insurance ensures that travelers can handle emergencies without significant financial stress. It is especially useful for international trips, expensive vacations, or travel to destinations with unpredictable conditions.

Understanding Travel Insurance

Travel insurance is a financial safety net designed to protect travelers from unexpected expenses before or during a trip. It covers a wide range of risks, including medical emergencies, trip cancellations, lost baggage, travel delays, and other disruptions that could impact your journey. Whether you’re traveling for leisure, business, or adventure, having the right coverage ensures peace of mind and financial security.

How Much Does Travel Insurance Cost?

The cost of travel insurance depends on multiple factors, including:

Total Trip Cost – The more expensive your trip, the higher your insurance premium.
Traveler’s Age – Older travelers generally pay more due to increased health risks.
Coverage Type – Basic plans are more affordable, while comprehensive policies with extensive benefits cost more.
Destination – Travel to high-risk areas or remote locations may result in higher insurance costs.
Trip Length – Longer trips typically require higher coverage, increasing the premium.

Generally, travel insurance costs between 4% and 10% of your total trip expenses. For example, if your trip costs $5,000, your insurance premium might range between $200 and $500, depending on your selected plan and coverage options.

How Travel Insurance Works

Travel insurance provides financial protection against unexpected travel disruptions, including medical emergencies, trip cancellations, lost baggage, and delays. It can be purchased through private insurers, travel agencies, airlines, or brokers, either as a standalone policy or an add-on during booking.

Timing is important when buying travel insurance. Some benefits, like pre-existing condition waivers, require purchasing the policy within a set period after booking. Early purchase also ensures maximum coverage for trip cancellations due to unforeseen events like illness or weather-related disruptions.

The cost of travel insurance typically ranges from 4% to 10% of the total trip price and depends on factors such as trip cost, traveler’s age, coverage type, and destination. While some credit cards offer limited travel insurance, standalone policies often provide more comprehensive protection.

Understanding key terms is essential. The premium is the cost of the policy, while the deductible is the amount paid out-of-pocket before coverage applies. Policies also have exclusions for certain risks, and claims must be filed to receive reimbursement for covered losses.

Primary and Secondary Coverage

When you purchase travel insurance, you may have concurrent coverage, meaning multiple insurance policies could apply to your claim. If your travel insurance offers primary coverage, it pays out first without requiring you to file a claim with another provider, preventing potential rate increases on other policies.

In contrast, secondary coverage requires you to first file a claim with other applicable insurance—such as an airline for lost baggage or your auto insurer for a damaged rental car—before your travel insurance steps in to cover remaining costs.

Coverage Requirements

To qualify for reimbursement, your claim must fall under the specific terms and conditions of your policy. For example, lost baggage insurance may cover personal belongings, prescriptions, credit cards, and travel documents, but you may need to report the loss to the police or relevant authorities to be eligible for coverage.

Policy Coverage Limits

Travel insurance policies have maximum payout limits, meaning there’s a cap on how much you can receive per claim. For example, a lost baggage claim might only reimburse up to $500 per bag, with lower limits for valuables like jewelry or electronics. Some policies also require proof of purchase, and without receipts, the insurer may only cover repair costs.

Additionally, some policies include deductibles, meaning you must pay a set amount out-of-pocket before insurance covers the remaining expenses, up to the policy limit.

Trip Cancellation & Interruption Coverage

This type of coverage reimburses travelers for prepaid, non-refundable expenses if a trip is canceled, delayed, or cut short. It comes in several forms:

Trip Cancellation – Covers non-refundable expenses if you cancel before departure for an approved reason.
Trip Interruption – Reimburses costs if you need to cut your trip short due to a covered event.
Travel Delay – Covers expenses like hotel stays and meals if your trip is delayed.
Cancel for Any Reason (CFAR) – Allows cancellation for any reason, offering partial reimbursement (typically 50%-75% of costs), but comes at a higher price.

Acceptable Cancellation & Interruption Causes

Coverage varies by provider, but common covered reasons include:

Personal illness or injury
Illness or death of an immediate family member
Weather-related disruptions
Legal obligations (jury duty, court summons)
Unforeseen work conflicts
Bankruptcy of a travel provider

Some policies also allow claims for terrorism, financial default, or work-related cancellations, but they may require additional premiums or stricter conditions.

Damage and Baggage Losses Coverage

Losing, damaging, or having baggage stolen is a common travel issue that can disrupt a trip. Baggage and personal effects coverage provides financial protection for lost, stolen, or damaged belongings while traveling to, from, or within a destination.

However, many travel insurance policies only compensate travelers after all other available claims have been exhausted. For instance, airlines may reimburse for lost baggage, but their coverage has limitations. Baggage insurance acts as an additional layer of protection, covering items that exceed airline compensation limits.

Coverage Limits and Restrictions

Most policies limit coverage per item—typically $500 per item and $250 for additional items.
Travelers can increase or decrease coverage amounts by selecting a policy that fits their needs.
Some policies exclude airline-responsible baggage loss or damage, requiring travelers to file claims with airlines first.

Airlines usually offer some reimbursement for lost or damaged baggage, but their policies may have strict compensation limits. Travel insurance ensures additional security when airline reimbursement is insufficient.

Rental Insurance

Vacation Rental Insurance

Vacation rental insurance covers unexpected costs related to damage or issues with a vacation rental property. Some policies also include trip cancellation and interruption coverage, reimbursing travelers when they cannot use their rental due to covered reasons.

Common covered reasons include:

Lost or stolen keys, leading to additional expenses.
Unsanitary or unsafe rental conditions, forcing travelers to find alternative accommodations.
Misrepresented rentals, where the property does not match the advertised listing.
Overbooked properties, leaving travelers without a place to stay.

Rental Car Insurance

Rental car insurance provides coverage for damage or loss of a rental car while on a trip. It serves as a replacement for the rental agency’s collision damage waiver (CDW) or as secondary coverage to a traveler's personal auto insurance.

Typical coverage includes:

Collision damage, covering repair costs if the rental car is involved in an accident.
Theft protection, reimbursing travelers if the rental car is stolen.
Vandalism and accidental damage, ensuring coverage for unexpected incidents.

However, rental car insurance does not cover liability, meaning it does not pay for damages or injuries a traveler causes to others. Additional liability coverage may be required for full protection.

Accidental Death and Dismemberment (AD&D) Coverage

Travel can come with unexpected risks, including accidents that result in serious injury or loss of life. Accidental Death and Dismemberment (AD&D) coverage provides financial protection by paying a lump sum to a traveler or their beneficiaries in the event of a covered accident.

Types of AD&D Coverage

AD&D insurance typically consists of three key parts, offering protection based on where and how the accident occurs:

Flight Accident Insurance – Covers accidents that occur during flights on a licensed commercial airline.
Common Carrier Coverage – Applies to accidents while traveling on public transportation such as a train, ferry, or bus.
General Travel Coverage – Provides protection for accidents occurring at any point during the trip, not limited to specific transportation.

How to Get Travel Insurance

Travel insurance policies vary in cost, coverage, and exclusions, depending on the provider and the type of protection you choose. Coverage options include single-trip, multi-trip, or annual plans.

Steps to Purchase Travel Insurance

To obtain a travel insurance policy, you must complete an application with details about your trip, including:

Number of travelers
Total trip cost
Destination
Travel dates
Date of first payment toward the trip

The insurance company evaluates this information based on underwriting guidelines to determine your eligibility and policy rate. If approved, you’ll receive a policy covering your trip. If denied, you can apply with another provider.

What Travel Insurance Doesn’t Cover

Travel insurance has exclusions that may limit coverage. Common exclusions include:

Pre-Existing Medical Conditions – Unless covered by a waiver.
Civil and Political Unrest – Disruptions due to riots or instability.
Pregnancy and Childbirth – Routine maternity care is not covered.
High-Risk Activities – Adventure sports like skydiving or skiing require extra coverage.