The Costa Concordia Tragedy and the Need for Travel Insurance

The Costa Concordia

We’ve all been glued to the news as the heartbreaking and bizarre story continues to unfold.

Vacationing via cruise ship has always seemed to be one of the safest modes of travel, but it’s clear from the news of the Costa Concordia that a catastrophe can strike anytime and anywhere.

The Christian Science Monitor reports that Carnival Cruise lines has announced that the passengers of the Costa Concordia will be provided with refunds, lodging, transportation home, and replacement value of possessions lost on board.

Not every company can necessarily afford to be so generous, however. If you are traveling sometime this year, you might want to consider how to protect yourself financially in case of vacation disaster:

1. Travel insurance through your credit card. If you purchase your travel using a credit card, you will often be offered some sort of travel insurance as a perk of using the card. Credit cards offer insurance on anything from rental car collision to trip cancellation to fatal travel accidents to lost luggage.

However, the insurance offered by credit cards should be considered a secondary form of travel insurance, since there are many rules, exclusions, and coverage holes in the average credit card travel insurance package. And the most common need for travel insurance—covering a cancellation due to illness or family emergency—is only covered by 15% of credit cards.

In addition, credit cards generally do not offer medical or evacuation coverage. For those traveling abroad or on a cruise, this is an important exclusion to note. If you were to fall ill or be injured outside of the United States, you could potentially be on the hook for your medical care and emergency flight back home.

If the passengers of the Costa Concordia were not being reimbursed by the company and only had their credit card travel insurance to rely on, they could be facing some hefty bills between them and getting home.

2. Cancellation insurance. This offers you a refund for the price of the trip should you be unable to take it. Generally, cancellation insurance costs 5%-7% of the price of the trip. For travelers taking a structured vacation—like a cruise or a tour—the company will often offer a cancellation waiver for about $40-$60.

The waiver is similar to cancellation insurance, but it has a number of restrictions, including a prohibition on canceling your trip at the last minute. Unfortunately, that is when most vacations need to be cancelled.

The news of the Costa Concordia has understandably made travelers with 2012 cruise plans skittish about their vacation. If you have not purchased cancellation insurance or a cancellation waiver, it is still possible to back out of your cruise, although it may cost you.

The typical time frame for canceling a cruise for a full refund is more than 75 days before the ship sails. After that point, you could lose up to 75% of your purchase price—or the entire purchase price if you cancel within two weeks of the sail date.

Adding 5%-7% to the price of your trip could help you rest easy that your vacation won’t be an expensive empty room on a cruise ship.

3. Personal effects coverage. This is one type of travel insurance that most vacationers probably don’t need. Often, your renter’s or homeowner’s insurance will cover the loss of your possessions, no matter where those possessions happen to be in the world.

However, if you’re traveling with a great deal of expensive photography equipment, sports gear, or your heirloom jewelry, it might be worth your while to purchase an endorsement to your existing homeowner’s policy to cover those items while you are traveling.

The endorsement will cost you less than a travel-specific personal effects insurance policy, and it will protect your valuables just as well.

4. Travel medical insurance. In many cases, your medical insurance will cover some or even all of any medical emergency you have while away from home. However, each policy is different, and it’s a good idea to go over your policy and figure out what is and is not covered.

For instance, you may be covered for an extended stay in a foreign hospital, but you might have to pay upfront and be reimbursed.

It’s generally a good idea to purchase travel medical insurance any time you are traveling abroad or are planning an active vacation.

The Bottom Line

The Costa Concordia tragedy has made it clear that thinking “It won’t happen to me!” can be risky. Before your next vacation, spend a little time thinking through your insurance options. The peace of mind is worth the money.

Image by Aah-Yeah

This post was featured in the sesquicentennial edition of the cavalcade of risk.