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Is Travel Insurance Worth It?

Do you see travel insurance as an unnecessary expense? Find out why travel insurance is worth every cent

If you’ve dipped into your savings to spend thousands of dollars on an overseas getaway, you might be feeling a little reluctant to fork out even more extra money for travel insurance. However, neglecting to take out travel insurance for your next holiday could be a very costly mistake. Common travel mishaps such as overseas medical emergencies can be extremely costly.

Travel insurance is designed protect you against unforeseen problems and issues that can crop up and ruin your travel plans. Taking out a policy before you leave home will ensure peace of mind and offer a financial safeguard for you and your loved ones.

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The costs of common mishaps overseas

Hospitalisation if you're injured or fall ill

If you experience an unexpected medical emergency while overseas, you could end up facing expensive medical bills. For example, a hospital bed in the United States costs $751.06 a night on average and nearly $900 a night in Singapore.

You can also fall liable for the initial cost of ambulances, drugs and diagnostic tests, the cost of evacuating you back home if the country you’re in can’t facilitate your medical needs. With no overseas cover available through Medicare, you could quickly end up facing thousands of dollars worth of bills.

Compare that with the cost of a travel insurance policy that offers cover for medical expenses;  it’s a fraction of the cost you would otherwise have to pay in a medical emergency.

Legal fees and liability for accidents to third parties

If you’re responsible for causing bodily injury to someone else or for damaging someone else’s property on your holiday, you could find yourself being sued for damages or compensation. Your liability for damages, compensation and legal fees could total hundreds or thousands of dollars. For example, the cost of an attorney could cost you anywhere between $200 and $1,000 per hour in the United States.

The vast majority of policies include personal liability cover as standard (often $2.5 million or more). If you choose a policy that doesn’t automatically include personal liability protection, the cost of adding it to your policy is minimal compared to the expenses you could face if liable for third-party damages or injuries.

Excess charges if you crash a rental vehicle

Although many travellers aren’t aware of it, when you sign an agreement to hire a rental car, you typically agree to cover an insurance excess if the car is crashed, stolen or damaged while in your possession. A 2015 study by Choice Magazine revealed that the excess charges at five major car rental companies ranged from $2,750 (Budget) to $4,000 (Hertz and Thrifty).

Travel insurance can provide cover for the rental car insurance excess as an automatic benefit or as an extra option. If you suffer an injury or illness while driving a rental vehicle and you’re unable to return the car to the rental company’s nearest depot, travel insurance can cover the cost of doing so.

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Why people often say travel insurance is a rip-off

There are plenty of stories around about travel insurance policies ‘failing’ to cover policyholders or using pedantic excuses to get out of paying a claim. While some cases are unfair, most of these stories come from people who:

  1. Fail to understand their policy
  2. Pay for cover they don’t need
  3. Don’t take advantage of travel insurance perks
  4. Don’t understand that travel insurance is a safeguard

1. Failure to understand their policy

Instead of reading the product disclosure statement (PDS) to discover the limits and exclusions of their policy, some people pay for their travel insurance without a realistic expectation of what is covered. People often blindly expect to receive a payout for policies when:

  • They were under the influence of alcohol or drugs
  • They are faced with expensive medical bills due to an undisclosed pre-existing medical condition that causes the policyholder to be hospitalised overseas
  • They travel to a country that the Australian Government has specifically warned against visiting
  • They fail to report stolen items to the police within 24 hours, or fail to obtain a written record of that report
  • They cancel a trip purely due to a change of mind

2. Paying for cover they don’t need

People sometimes over insure and pay for benefits they may not need. They include:

  • Paying for pet cover when you don’t plan to bring a pet with you on your travels
  • Paying for a policy with car rental excess when you don’t plan to rent a car
  • Paying for extra insurance when purchasing tickets or travel accommodation when you've already bought a standalone policy

3. Not taking advantage of travel insurance perks

Many people don’t realise they are covered automatically for certain benefits such as:

4. Not understanding that travel insurance is a safeguard

Travel insurance is a safeguard against unexpected incidents that can have significant financial impact on you. This means a claim for a small amount such as a stolen wallet costing $100 may see a pay-out of $0 after a $100 excess. Conversely, a pay-out for a hospital bed of $1,000 could be $900 after excess. Travel insurance should be used for significant losses.

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I made a claim in the past that was denied. How can I make travel insurance worth my time and money?

It’s essential to understand exactly what your policy does and doesn’t cover from before you begin your trip up to when you need to make a claim. Here are some tips to make sure your travel insurance is worth every cent.

When you buy your policy

Here are some common ways to make sure your travel insurance pays when you make a claim

  • Declare pre-existing conditions. Declare any pre-existing medical conditions to your insurer if they are not automatically covered. This will allow the insurer to pre-assess you and decide if they can cover your pre-existing medical conditions beforehand. While you may have a reduced benefit limit when you claim due to your condition, this is a better alternative than having your claim denied all together
  • Buy extra sports cover. For extreme sports and adventure activities like skiing or paragliding, you’ll need to find a policy that provides automatic cover or you’ll need to purchase additional cover.
  • Specify all the regions you are travelling to. This is particularly important when travelling to a volatile country or you have a planned stopover destination. You’re only covered at a stopover destination if your stay is less than 48 hours. Any longer and you will need to declare the stopover as a destination on your policy. If you’re travelling to a volatile destination, make sure you specify this region on your policy. Your travel insurance will be able to assess the region and let you know if the region is covered or not.
  • Compare policies features online. Comparing policy benefit limits, exclusions and excess charges will help understand what you can and cannot claim. You’ll also be sure of how much you’ll need to pay when you make a claim.

When you travel

  • Follow the law. Claims are denied if you engage in reckless or unlawful behaviour.
  • Follow government warnings. Claim are denied if you travel against government advice or warnings.
  • Don’t undergo uncovered medical procedures. Claims are denied for elective procedures or cosmetic surgery.
  • Don't take unnecessary risks. Claims are denied if you choose to take risks such as drive a car under the influence of alcohol.

When you make your claim

  • Get in touch with your insurer as soon as possible. The sooner you tell your insurer, the smoother the claims process. They can advise you on the all the documentation that you’ll need.
  • Claim within the time frame. Policies will have a time frame for when you can claim.

luggageI made a claim in the past for a stolen item and received a benefit that was half the items value. I’m not convinced travel insurance is worth it.

When you make a claim for lost or stolen items, you usually won’t be reimbursed the full value of your items for the following reasons:

Valuable item limits

Travel insurance policies will usually have a dollar limit on the cover provided for valuable items you take with you when you travel, including cameras, laptops and mobile phones. There are two types of limits you should be aware of when it comes to your valuable items:

  1. The overall limit that the insurer will pay for all lost, stolen or damaged items
  2. The sub-limit that applies to each individual item

You should review your policy’s PDS to understand the benefit limits that apply to any items you take on your travels.

Depreciation charges

Insurers will apply depreciation to your valuables when deciding how much to pay for your claim. This means an insurer will take into account use, wear and tear and potential obsolescence when working out how much your asset has reduced in value over time, so this may limit the amount you are able to claim.

Excess charges

You should also be aware that you’ll typically need to pay an excess when you make a claim.


So how is travel insurance worth it?

Travel insurance is designed to protect you from unexpected events.  To make premiums more affordable, policies will require you to partially self insure in the form of excess charges and item limits. Depreciation is also applied, which means you’ll be reimbursed for the value of the item when it was lost or stolen, not what you paid for it when you bought it new.

It’s possible to reduce or eliminate excess charges with an upfront payment. You can also list valuable items on your policy, which will ensure the full limit amount is paid in the event of a claim as opposed to the depreciated value. Although these options will require an increased premium upfront, it means that you can avoid larger expenses if something happens.


I already have free travel insurance with my credit card, so why should I buy a standalone policy?

While credit card travel insurance has the benefit of being free, it does have its shortfalls. They include:

  • Lower benefit limits. Credit card travel insurance typically offers lower benefit limits than a standalone travel insurance policy. For example, cover for overseas medical expenses is capped at $500,000 while many standalone policies offer unlimited protection.
  • Limited trip duration. Credit card travel insurance often has a maximum trip duration of  around 90 days
  • Higher excess charges. You excess charges are usually higher when you make a claim on credit card travel insurance.
  • Most pre-existing conditions are not usually covered. Credit card travel insurance usually excludes all pre-existing conditions from cover.
  • You must pay for the trip with your credit card. In order to activate cover, you’ll need to purchase your trip with your credit card.

Taking out a standalone policy is recommended in order to overcome the shortfalls that come with credit card travel insurance.


Recap: Getting travel insurance that's worth it

Travel insurance provides essential cover for those potentially costly overseas medical expenses. It also provides financial protection against risks such as lost or stolen luggage, trip cancellations and interruptions, personal liability and rental vehicle insurance excess.

In order to make sure your policy is worth every cent of your hard-earned money, read the fine print closely before you buy. Make sure you understand what you’re covered for, what rules you will need to follow on your travels and what to do if you need to make a claim. This will allow you to travel with complete confidence and ensures that your travel insurance policy is money well spent.

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Maurice Thach

Maurice is a publisher for finder.com.au. Daily research of Australia's insurance offerings allows him to breakthrough the noise of the many policies out there to uncover what can (and can't) be covered. Maurice hopes to make finding the right insurance easier for all.

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