To Buy or Not to Buy – Analyzing the Need for Travel Insurance

A recent post on my mom’s service trip to India on which she broke her hip raised a few questions among readers about travel insurance. Is it worth the expense, or is it like the extended warranty offered on an electric screwdriver at checkout – an extra expense that pads the retailer’s bottom line.

As with most things, it depends. Weigh these 3 things:

• Size of the potential loss
• Probability of loss
• Your comfort level with the risk of loss

The 1st and 2nd bullet are the stuff of green-shade-wearing actuaries. But forget about them and do these calculations for yourself:

1. (Big potential loss) X (Big probability of loss) = Yes insurance
2. (Small potential loss) X (Small probability of loss) = No insurance
3. (Big potential loss) X (Small probability of loss) = ???
4. (Small potential loss) X (Big probability of loss) = ???

#1 Scenario: (Big potential) X (Big probability)

You are going to a cousin’s destination wedding in Tahiti with your father, who just had triple bypass surgery and is newly-fitted with a pacemaker. His doctor has asked him to stay home, but your father wouldn’t miss these nuptials for anything.

Unless he has to. This scenario is tailor-made for travel insurance, because the trip is expensive and the probability of having to cancel is not small. A no-brainer.

#2 Scenario: (Small potential) X (Small probability)

You are going to a cousin’s ‘destination’ wedding … in Poughkeepsie, NY. You are going by yourself on a Greyhound bus.

If anyone proposes insurance for this trip, there is only one appropriate response: You laugh uncontrollably in their face. Even in the unlikely scenario that your cuz gets cold feet and skips town, you aren’t out enough cash to cry over. Save your tears for when she comes looking for a shoulder to cry on.

#3 Scenario: (Big potential) X (Small probability)

A good example of this scenario is our recent guided vacation to Alaska. There wasn’t a credible reason to believe that the trip might be canceled or interrupted (no expected extreme weather, or shaky-health participants), but since it was a ‘deluxe’ escorted trip, the dollars committed were extreme (over $5,000 per person). So even though the chance of trip cancellation was slim, the size of the potential loss motivated us to secure travel insurance, for $601 for the two of us (kids were included free).

The insurance was through AIG and covered:

• 100% of cost for trip cancellation prior to the scheduled departure date.
• 150% of cost for trip interruption after departure: reimburses forfeited, non-refundable, unused payments or deposits
• $750 for trip interruption – return air only
• $750 for trip delay: up to $150 per day/per person for delays of more than 5 consecutive hours
• $250 for a missed connection due to inclement weather or common carrier
• $1,000 for baggage or personal effects that are lost, stolen or damaged
• $300 for baggage delay of more than 12 hours
• $25,000 for accident sickness medical expense including dental
• $500,000 for emergency evacuation and repatriation of remains (very generous, but was really hoping to not need this one!)
• $10,000 for accidental death & dismemberment (not so generous, but still hoping to not need this one!)

We never redeemed a cent of these benefits, but we were happy we didn’t have to.

#4 Scenario: (Small potential) X (Big probability)

You are renting a house in Key West…in September. The height of hurricane season. The trip doesn’t require a 2nd mortgage, but the chance of vacation interruption or cancellation is north of single digits.

What to do in this scenario (and for #3) depends on your tolerance for risk, and how it affects your sleep.

Personally, I have a good tolerance for this type of minor risk, so we don’t generally buy trip insurance under these circumstances, unless the loss potential is the size of Trump’s ego.

Rather, every time we don’t buy insurance, I play in my mind one of my favorite video clips, the one where I smugly deposit the cash I would’ve spent on insurance into my savings account. Probably not a GIF that will go viral, but it’s wildly popular in my head.

Mom’s India Experience

We haven’t been burned by this stinginess yet, but my mom’s experience in India has given me pause.

As part of her mission team, she, like everyone else in the group, was provided a 9-day policy – standard procedure for an official church trip.

No one gave it any thought until the crack heard ’round the world. Then suddenly the $50 policy was the best return on any investment ever.

It completely covered:

• Pre-surgery tests and diagnostic X-rays
• Hip replacement surgery
• Intensive week-long hospital stay
• Pre- and post-consultations with 3 doctors
• Three weeks of post-op physical therapy
• Transportation

Total out-of-pocket cost for Mom or the church? $0.

That’s not to say that it was all smooth sailing (or smooth cricketing as it were). Operating in a developing country like India, what you’re due and what you get sometimes differ.

I’ll let my mom take it from here:

There were a few tense moments. You see, everything had to be paid up front. Many thousands of dollars were advanced by the church and given to the hospital before they would even agree to take me as a patient. Then the insurance money was to be paid directly to the hospital and we were supposed to reimburse the church with what was refunded by the hospital to us.

But when the time came to discharge me, the hospital was very reluctant to give back that original advance. They told us they couldn’t do it then because there was a bank holiday, but they would take care of it later. I was convinced it would not work, so I sat back down on my bed and said politely that I wasn’t leaving until we had the money in hand. That was in the morning, and finally about 7 PM they gave us a check and we left.

There you have it direct from the lips of an experienced and wily 70-something mother, who realized one butt firmly planted in their non-revenue-generating hospital bed is more valuable than many butts comfortably resting in the U.S., trying to get an Indian hospital administrator on the phone.

But even the wiliest women can be beat, as also related by Mom:

Somehow in the excitement of getting me loaded into the car to leave the hospital, my metal walker got left behind. My Hindi-fluent missionary caregiver returned immediately for it, but it was too late. He had to buy me another one.

See me previous post on 7 Insurance Commandments for Thrifty People for more guidance on when to buy insurance, and how to use it.