What is travel insurance and do I need it? Here's what it actually covers

• For most everyday travelers, Matt Granite, known as The Deal Guy on YouTube, recommends sticking with the trip protection major credit cards provide when they're used to purchase travel.
• The biggest benefit of purchasing travel insurance is covering medical emergencies far from home.
• If travelers choose to purchase insurance, experts recommend sticking with a vetted member of the U.S. Travel Insurance Association.

Nothing can really make up for a ruined vacation that was months in the making. But the costs of missed trips, being stranded or worse are calculable.

"There's always some amount of uncertainty or risk in travel either medically, financially, personal reasons," Jeremy Murchland, president of Seven Corners travel insurance. "If you can't afford to lose all the money you've invested in your trip, then consider travel insurance."

Travel insurance and trip protection, provided by credit card carriers, can help absorb some unexpected costs, but there's a wide range in what's actually covered. Here's what travelers should know when planning their trips.

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How does credit card trip protection work?

For most everyday travelers, independent personal finance expert Matt Granite, known as The Deal Guy on YouTube, recommends sticking with the trip protection major credit cards provide when they're used to purchase travel.

"Look through the coverage that you might already have on your credit card," he said. "A lot of us have great credit cards, and we are (only) using 2% of the features available to us, including lost luggage and all sorts of reimbursement issues."

Granite singled out Chase and American Express for exceptional service but said most Visa cards will offer protection as well.

"If something happened – in the situation of the Southwest flight cancellations, the airline canceled – if you have most Visa credit cards, you'll dispute that charge; they will go to bat for you," he said. "They will freeze that amount of money, give it right back to you while they try to clear things up with the airline, and it's, I'd say in my experience, handled 90% to the customer's satisfaction." 

He recommends using a credit card connected with a hotel or airline because of the added benefits included with those types of cards.

"It doesn't matter whether or not you go to Hilton (or another chain), you'll be scoring a whole wonderful array of protective products built into that credit card, and you want to put your travel, your cruises, your Expedia trips, whatever it is that you're doing, on to those credit cards," Granite said. "Those are the ones that will protect you, and you'll save significantly more money, hassle and headache." 

Granite generally does not recommend purchasing separate travel insurance, unless travelers have medical concerns traveling abroad. 

Why would I buy travel insurance? 

The biggest benefit of purchasing travel insurance is covering medical emergencies far from home.

"I tell people that it's good to have the insurance to get your money back when you have to cancel (a trip), but it's really good to have it if you get really hurt or sick some place and need to come back on an air ambulance," said Daniel Durazo, director of Marketing and Communications for Allianz travel insurance. 

He recalled an incident with a customer in Italy who had a stroke and had to be flown back with a doctor.

"We took 16 seats out of a Lufthansa airliner and built an ICU in the middle of a plane," Durazo said. "This is stuff that happens to people, and it can get very, very expensive."

What does travel insurance cover?

Jeremy Murchland with Seven Corners said most insurance companies and policies now include COVID-19 coverage, but advises travelers to look closely at plans for details.

"You want to make sure you understand what type of interruption coverage or quarantine coverage you may have in the event that you travel and come down with COVID," he said. 

While plans vary, other common coverage areas include trip cancellations, interruptions and significant delays as well as medical expenses, lost baggage, theft and change fees.

What is not covered by travel insurance? 

There are caps to reimbursements, which can range widely.

"No insurance product is going to give you an unlimited amount of coverage because there would be no way to figure out how much to charge the consumer," Durazo said.

He said with significant delays, Allianz's most popular plan would limit daily benefits to $200 per person, per day for up to four days. The total would grow with each traveler included in the policy.

Limitations also depend on the type of travel insurance purchased, most notably: named perils insurance or cancel for any reason plans.

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Named perils insurance is generally cheaper and has more exclusions. It would not, for example, compensate travelers who decide to cancel trips because they fear contracting COVID if cases spike at their destination or even if the CDC and State Department advise against travel. 

As the name implies, cancel for any reason plans offer more flexibility and cost more.

"If you cancel your trip for a reason that's covered by the policy, you'll get 100% of your money back for your prepaid nonrefundable trip deposits," Durazo said. "But if you cancel for another reason, such as 'I just don't want to go,' then you'll get 80% back of your nonrefundable prepaid deposits so the consumer has a little bit of skin in the game." 

There may be certain windows of time in which cancel for any reason plans must be purchased after initial payments on trips are made.

How do I choose?

Personal finance expert Matt Granite recommends comparing plans and providers on SquareMouth and InsureMyTrip.

"They are independent, third-party websites that will allow you to see the cost of insurance, side-by-side compared to different policies," he said. "A lot of the time, the way these search engines will present the policies to you will highlight some of the exclusions that you'd need to see (and) that you wouldn't otherwise be able to ascertain unless you sat down with a lawyer reading through the documents, word by word, page by page."

Murchland and Durazo recommend reading terms closely and asking questions.

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"Insurance is a complicated thing," Murchland said. "I don't care if it's auto, homeowners, what type of insurance it is, we recommend you call in and talk to a licensed agent when you're buying the insurance so they can answer your questions and make sure you get the right thing."

SquareMouth suggests asking whether things like hazardous sports are covered or not when shopping for a plan, and InsureMyTrip advises people to check for alcohol exclusions.

Whichever provider travelers choose, if they choose to purchase travel insurance at all, Durazo recommends sticking with a vetted member of the U.S. Travel Insurance Association.