What Exactly Does Trip Cancellation Insurance Cover?

Travel insurance is a broad term used to describe the different types of travel coverage you can get for a trip. You can get coverage for lost or delayed baggage, overseas medical coverage, or insurance to cover travel delays, for example. While each type of coverage is different, they all serve the same purpose: to protect you from out-of-pocket expenses if something goes wrong during your travels.

Among the different types of travel insurance available, trip interruption and cancellation coverage is one of the most popular types out there. This coverage provides reimbursement if your trip is interrupted or canceled for a covered reason. If you need to cancel your trip before you leave because you break a leg on your way to the airport, for example, the cancellation component of your coverage kicks in.

The trip interruption part of the policy comes into play when your trip is abruptly or accidentally interrupted for a covered reason — say, if you travel abroad and need to come home early because your child gets sick.

Just like other types of travel insurance, coverage limits and specific details for trip cancellation/interruption coverage vary based on where you get your policy. We'll go over what trip interruption and cancellation insurance might cover, as well as the best place to score an affordable policy.

Using coverage provided by your credit card

First things first. If you're looking for a way to get trip cancellation/interruption coverage for free, you may be able to score this perk and other benefits with one of the top travel credit cards. Believe it or not, many of these cards offer trip cancellation/interruption coverage for free as a cardholder perk. For the coverage to apply, however, you have to have used your card to pay for the trip associated with your claim. (See also: 6 Types of Travel Insurance Credit Cards Include That You Didn't Know About)

Coverage limits and other details can be drastically different from card to card. One popular credit card trip cancellation/interruption insurance policy covers you when you use the card for prepaid tours, travel, and accommodations. However, coverage is considered secondary to that of any travel insurance you've purchased or reimbursement offered by the common carrier — in other words, the airline, bus, train, or cruise operator. That doesn't mean you have to buy your own insurance policy in order to use the credit card coverage, though.

Let's say that you need to cancel a trip, including airfare and hotels that set you back $2,000. If you already have a trip cancellation policy that covers $1,000 in related bills, but used your credit card to pay for the trip, your credit card coverage would kick in to cover the other $1,000 you spent. If you don't, you could use your credit card coverage on its own up to its included limits.

More good news with this particular policy, however, is that immediate family members of the cardholder are covered — even if the primary cardholder isn't traveling. This means that a spouse who is stranded in another country could gain access to your trip cancellation/interruption insurance benefit even if you're not there — provided you used your eligible credit card to pay for their trip.

Even better, this coverage is worth up to $10,000 per covered trip with a maximum limit of $20,000 per occurrence and $40,000 over a 12-month period. And yes, this coverage works even if you paid for part of your trip with points.

Other credit cards may limit your coverage to $5,000 per trip, or even less, but may not have an annual coverage limit. And some cover any travel companion whose travel was bought with the credit card.

Reasons covered by credit cards for trip cancellation or interruption

In order to use these types of coverage, you'll need to document a legitimate reason for the cancellation or interruption. Common reasons that are usually covered include:

  • Injury, illness, or death of the cardholder, a traveling companion, or an immediate family member.

  • Severe weather or natural disaster that prevents the start or continuation of a covered trip.

  • Terrorist action or hijacking.

  • Jury duty or receipt of a subpoena that cannot be postponed or waived.

  • Bankruptcy or financial default of the cardholder's travel company.

More generous credit card policies may even cover you if someone in your party is laid off from their job, if your pet is injured and needs emergency medical care, or if your permanent residence is burglarized or deemed unsafe. (See also: What Exactly Does Credit Card Travel Accident Insurance Cover?)

Reasons not covered by credit cards for trip cancellation or interruption

Here's what's usually not covered. Canceling or interrupting your trip because of:

  • Injury or illness sustained after traveling against a doctor's orders.

  • A work conflict.

  • A pre-existing medical condition.

  • War.

  • Change in your plans or financial circumstances.

So if you thought you could afford a weeklong trip to Paris but realize as the time gets closer that it's really going to blow your budget, your coverage can't help you recoup any cancellation costs.

Because credit card policies vary greatly in what they cover, you should be careful of which card you use you to pay for travel if you want to take advantage of trip cancellation/interruption coverage or other travel perks. While "free" coverage is better than nothing, it pays to know what is and isn't covered under your plan — and what limits to expect.

Buying your own trip cancellation/interruption coverage

If you don't have a credit card that offers trip cancellation/interruption coverage, you can purchase your own plan. Companies like Travelex Insurance and Seven Corners make it possible to buy nearly any type of travel insurance coverage, and to customize your plan so it meets your unique needs. (See also: When Is Your Credit Card's Travel Insurance Good Enough?)

That said, the vast majority of policies offer comprehensive coverage, which includes cancellation/interruption coverage, but also medical and emergency medical coverage. These policies usually cost 4 to 10 percent of the cost of your trip. But just like the coverage you get for free with a credit card, plan limits and exclusions vary depending on the policy you buy.

Let's say you purchase trip cancellation/interruption coverage from Seven Corners as part of a broader travel insurance package. According to the travel insurance company, the "interruption" component of your coverage will kick in to cover the nonrefundable, unused portion of your prepaid trip costs and the additional cost to return home or rejoin your group due to a covered reason. Covered reasons listed by the company include instances of sickness or injury, jury duty, layoff, traffic accidents, and more.

Trip cancellation coverage, on the other hand, can refund the prepaid, nonrefundable costs of your trip, such as airfare, cruise tickets, tour bookings, and hotel reservations in the event you need to cancel for any of the covered reasons.

Coverage ceilings

But how much coverage will you have? It depends on the plan you choose. Unlike credit card coverage that is offered with set limits as a free benefit, travel insurance you purchase yourself can be tailored to your needs.

Some travel insurance companies offer trip cancellation/interruption coverage up to the entire cost of your insured trip. Based on personal experience, however, some trip cancellation/interruption insurance offered through other travel insurance providers comes with lower limits than what you get for free through a credit card. With Allianz Travel Insurance, for example, limits for cancellation and interruption can be as low as $1,000 per year. The same limit applies to the World Nomads standard plans.

While having $1,000 in coverage might seem sufficient, it may not be close to what you need if you're traveling abroad or planning a once-in-a-lifetime trip. Imagine you booked two round-trip business flights to Spain for $1,500 each and a Mediterranean cruise for another $2,200. If you had to cancel because a family member became gravely ill before you left on your trip (or any other covered reason), either of these plans could leave you drastically underinsured.

Cancel-for-any-reason policies

It's important to note that you can also purchase "cancel-for-any-reason" travel insurance policies — or add on the coverage to your regular travel insurance. Unlike traditional interruption/cancellation policies, these plans let you cancel for any reason — even if you just feel like it — as long as you do so no later than 48 hours before your scheduled departure.

Cancel-for-any-reason policies typically cost 8 to 12 percent of your trip's cost and will reimburse you for 75 percent of covered expenses.

When should you buy a policy?

Because coverage limits for trip cancellation/interruption insurance offered through certain travel credit cards is so robust, it almost always makes sense to use this coverage if you have a card that offers it. However, you should read the fine print to make sure you know exactly what's covered, what's not covered, and what you need to do to keep your policy intact.

If you don't have a free trip cancellation/interruption policy already, you can always sign up for a travel credit card that offers this coverage or buy a travel insurance policy on your own. As with any coverage you buy, however, you should make sure limits are high enough that your insurance will be adequate if you need it.

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What Exactly Does Trip Cancellation Insurance Cover?

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