Trip Cancellation Insurance Explained
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When booking travel, particularly expensive trips consisting of nonrefundable reservations, it makes sense to consider trip cancellation insurance since it can protect your deposit if your plans do not materialize due to unforeseen events. However, not every reason for canceling a trip will qualify for coverage, so you’ll want to familiarize yourself with the basics of trip cancellation insurance.
What is trip cancellation insurance?
Trip cancellation coverage can be purchased as part of a comprehensive travel insurance policy, or you can receive it for free when you hold certain premium credit cards. The benefit is designed to protect prepaid, nonrefundable reservations, including flights, hotel reservations and other bookings if the trip is canceled due to an extraordinary circumstance. Each policy will state exactly which events are considered valid reasons for cancellations.
With COVID-19 still affecting travel plans, you’ll want to pay close attention to which reasons for cancellation due to the pandemic are valid. For example, wanting to cancel a trip you booked a while ago because your destination now has rising COVID-19 numbers and you’re afraid to travel is not likely a valid reason.
If you want to be able to cancel a trip for truly any reason, consider the cancel for any reason, or CFAR, supplemental upgrade when purchasing your insurance policy. CFAR will allow you to get up to 75% of your trip investment back as long as the trip is cancelled at least two days before departure.
» Learn more: Does my travel insurance cover the coronavirus?
What does trip cancellation insurance cover?
Imagine you’ve booked a two-week vacation to Italy costing $5,000 ($1,000 flight, $3,500 hotel and $500 excursions), all of which is nonrefundable. Then, a week before your departure date, you fall and break your leg. If you have trip cancellation insurance, you’ll be able to get your entire prepaid, nonrefundable trip cost back (as long as the entire amount was insured), since injuries that necessitate medical treatment and prevent you from taking your trip qualify as a covered reason.
Other covered reasons include death of your traveling companion, inclement weather that results in disrupted service, jury duty, terrorist incident, job termination and other extraordinary events. Although this is not an entire list of all the covered reasons, generally the cancellation must be due to unforeseen circumstances to qualify for a reimbursement. Review the fine print of your policy for the details of exactly which reasons are covered. When seeking reimbursement, you’ll need to submit claims to the insurance provider to substantiate your claim.
What is NOT covered by trip cancellation insurance?
Although a wide range of reasons allow you to receive your prepaid, nonrefundable travel expenses back in the event of a trip cancellation, there are important exclusions to know about. Trip cancellation insurance will not cover losses arising from self-harm, foreseeable events, acts of war, taking part in activities considered dangerous (e.g., skydiving, bungee jumping, endurance races, etc.), a felony, childbirth, dental treatment and more.
» Learn more: How to find the best travel insurance
Is trip cancellation insurance expensive?
The price of trip cancellation insurance can vary based on the traveler’s age, destination, length of trip, cost of trip and insurance company. Using the same $5,000, two-week trip to Italy as mentioned above, a search of policies on SquareMouth (a NerdWallet partner) ranged from $115 to $470, representing 2.3% to 9.4% of the total trip cost.
All policies provide 100% coverage of the trip cost, however the more expensive plans usually have higher limits on benefits like medical evacuation. If you’re only looking for trip cancellation coverage and no other protections, a policy equating to 2.3% of the total trip expenses seems reasonable.
Different ways to get trip cancellation insurance
Trip cancellation coverage can be included as part of a comprehensive travel insurance plan or offered as a benefit on premium travel credit cards. The Chase Sapphire Reserve® will reimburse you or your immediate family members up to $10,000 per trip. The Business Platinum Card® from American Express and many other American Express cards also offer up to $10,000 in trip cancellation coverage.
These premium cards also offer other insurance benefits like trip interruption coverage, emergency assistance services, trip delay and more. Terms apply. If you travel often and typically purchase trip cancellation coverage, consider applying for one of the cards that offer complimentary travel insurance. Not only will you get trip insurance benefits, but you will also get other travel perks and statement credits that can partly offset the annual fee.
If the coverage limits offered on the cards aren’t sufficient or you’re looking for more protections (e.g., coverage for emergency medical expenses), you’d be better off with a travel insurance. Although you’d incur an additional cost for purchasing a comprehensive plan, you’d have many more benefits not commonly found in the insurance policies offered by the credit cards.
» Learn more: The majority of Americans plan to travel in 2022
Which insurance coverage is best for me?
If you’re going on a trip consisting of costly flights, hotel reservations and excursions and would like to protect your prepaid, nonrefundable deposit but do not need any other coverage, a minimally priced trip cancellation insurance policy is a good choice. If you have a premium travel credit card, check if you already have trip cancellation insurance as a benefit before you purchase a policy.
However, if you’re looking for additional coverage like travel medical insurance, and/or a basic plan doesn’t have adequate limits, consider a comprehensive travel insurance policy from providers such as AAA, Allianz, and AIG. Read NerdWallet's full analysis of the best travel insurance companies here.
How to maximize your rewards
You want a travel credit card that prioritizes what’s important to you. Here are our picks for the best travel credit cards of 2023, including those best for:
Flexibility, point transfers and a large bonus: Chase Sapphire Preferred® Card
No annual fee: Bank of America® Travel Rewards credit card
Flat-rate travel rewards: Capital One Venture Rewards Credit Card
Bonus travel rewards and high-end perks: Chase Sapphire Reserve®
Luxury perks: The Platinum Card® from American Express
Business travelers: Ink Business Preferred® Credit Card