Insurance 101: Travel Insurance

It’s late 2024 and the COVID-19 pandemic is largely in the rearview mirror for most Americans. This means the travel industry is seeing a resurgence, with Americans returning to their pre-pandemic travel habits as of August 2023. This renewed appetite for travel, combined with the continued threat of severe weather and airline technical disruptions, has created an environment where travelers are even more aware than ever of the need to protect their often-expensive travel investments. 

Enter travel insurance. While not a new line of business, it’s certainly becoming more popular, possibly partly thanks to the pandemic itself, which opened people’s eyes to how much is at stake if they have to cancel a trip last minute due to illness. Forbes reports that Americans spent over $4 billion on travel protection between 2020 and 2022, while the number of people choosing to purchase travel insurance went up 10.7 percent from 2021 to 2022. 

All of this consumer interest means travel insurance is a hot topic for insurance carriers, agencies, and producers who want to capitalize on the demand. Not so fast, though! States are also quickly making and adjusting their own rules about who can sell travel insurance and what type of license is required. 

Wondering what your resident or nonresident states are thinking about travel insurance? Check out our Compliance Library’s regulatory updates section where you can search for the latest on travel insurance changes.

While insurers that offer travel insurance policies and all of their distribution channel partners need to keep up on the proper licensing requirements, this article will dive deeper into the basics of travel coverage and what those in the industry should know about it. 

What is travel insurance?

Travel insurance provides reimbursement and compensation for some of the most likely (and expensive) types of losses a traveler may incur. It’s useful protection for those traveling both domestically and abroad, though it can prove particularly valuable for those who’re far from home or those who’ve spent a large amount of money on their trip. 

Travel insurance can be a very important coverage for people in these situations, but it’s also a tricky product that often comes with a number of limitations and exclusions. Consumers need to understand what they’re actually paying for and what they’re entitled to receive with their travel insurance policy, which is why the role of the travel insurance agent is so important. That’s also why states are continuing to roll out new rules for the type of license an insurance producer needs in order to sell travel insurance. 

Why consumers choose travel insurance

The only thing predictable about traveling is that something will most likely go sideways. This is why travel insurance can be so important, particularly because policies are priced fairly low compared to the amount of benefits policyholders can receive. The average travel insurance policy is just around 5 percent of the cost of the trip, meaning you can protect the entire cost of your $5,000 vacation for just an extra $250. The more expensive your trip, the more it’s worth it to add coverage. 

Travel insurance commonly covers things such as: 

• Flight changes and cancellations that aren’t covered under consumer protection laws
• Reimbursement for hotel nights and tour tickets that a traveler misses because of a covered reason
• Emergency medical transport and coverage
• Replacing lost, stolen, or damaged baggage or personal belongings while traveling

However, travel insurance works differently than other types of insurance that consumers are familiar with, and some policies have very specific criteria for paying claims. This is why travel insurance agents need appropriate training and licensure before selling to consumers. 

How does travel insurance work?

Like most insurance policies, a policyholder pays a premium in exchange for the promise of reimbursement if they meet one of the qualifications for coverage under their policy. But travel insurance doesn’t work exactly like other coverages, like health insurance for example, even though it often covers emergency medical bills. 

In most cases, travel insurance will reimburse a policyholder for expenses they incur. For example, if their laptop is stolen and they have to buy a replacement, or if they get injured or sick while traveling and need emergency medical care or even a last-minute flight home. What this means is that the traveler is primarily responsible for these costs until they file a claim and receive reimbursement from their travel insurance company. For many people, this can still mean a lot of out of pocket expenses, at least in the short term before their claim is paid. 

Because Americans are used to a health insurance system where they often only owe a copay at the time of service, or even auto insurance where they only pay a deductible to the body shop and the insurance sends the rest, it’s important for travel insurance producers to make it clear to their clients how travel insurance works. Someone without a large amount of money on hand, or a large line of credit, may still find themself in serious trouble for a medical emergency while traveling, even with travel insurance. 

Types of travel insurance

There are also different types of travel insurance. From extremely broad (and more expensive) “cancel for any reason” policies to very specific ones such as trip cancellation insurance or travel health insurance. Some policies cover only general vacation activities and are mostly for use when your trip is interrupted or canceled, while others cover accidents that happen during more specialized activities like skiing or hang gliding. 

Once again, it’s vital for travel insurance agents to give their clients complete and accurate information so the client purchases coverage that they’ll actually be able to use if they need it. 

There are also plenty of other programs that aren’t exactly travel insurance but can assist with some of the same things. Many credit cards have built-in protection for lost baggage and trip cancellations. There are also emergency medical assistance programs that charge an annual membership fee and allow members to access services without paying out of pocket. These are not insurance, and don’t have to be sold by a licensed insurance agent, so it’s important consumers understand the difference.  

Common travel insurance exclusions

Travel insurance can be a valuable protection but it doesn’t cover everything for everyone at all times. Licensed insurance agents receive training so they can inform their clients about the particular exclusions of any policy they might sell. These vary from one insurance carrier to another and one policy to another, but some common travel insurance exclusions include: 

• Extreme sports, or otherwise risky activities: This can mean skiing, snowboarding, mountain climbing, scuba diving, horseback riding, and skydiving, among many others. The good news is that travel insurance policies do sometimes have add-on coverage for these types of recreations. Policyholders just need to be aware that they’ll need to purchase specific coverage if they want to be covered for accidents resulting from these kinds of activities while traveling. 
• Pre-existing medical conditions: If you have a chronic condition and decide to travel, and then have a major flare up while out of the country, your travel policy may not cover anything related to your transportation or treatment. Not all pre-existing conditions are automatically excluded under all circumstances, so it’s important to dig into the details of the policy before purchasing it if there’s any doubt about an ongoing medical condition. 
• Acts of God: Natural disasters like earthquakes, floods, hurricanes, and volcanic eruptions are typically excluded from travel insurance policies. These events are considered unforeseeable and beyond human control, making it challenging for insurance companies to provide coverage for the resulting losses.
• Terrorism and war: Due to the unpredictable nature of these events, insurance companies often exclude coverage for losses or expenses incurred as a result of terrorism or acts of war. Travelers visiting regions with known political instability or a high risk of terrorism should carefully consider their travel plans and assess the need for specialized travel insurance coverage.

Make sure your travel insurance agents are licensed and ready to sell 

If state-to-state variations on what’s required to sell travel insurance leave you confused, we don’t blame you! AgentSync helps insurance carriers, agencies, and MGAs/MGUs ensure every producer is fully licensed in accordance with their resident and nonresident states’ requirements for each line of business they sell. And, all of that without manual processes and duplicate data entry. 

Contact one of our producer licensing and compliance experts today to learn how streamlining and automating your distribution management can save you money, reduce risks, and lead to a better reputation among employees and producers.