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Can I Buy Travel Insurance That Covers Financial Default?


Question: Can I Buy Travel Insurance That Covers Financial Default?
I'm worried that my airline will go bankrupt. Can I find a travel insurance policy that will cover an event like this?

Yes, but you'll definitely want to read the fine print before you buy. Financial default coverage varies from policy to policy, and some travel insurance companies don't offer it at all.

According to online travel insurance agency SquareMouth.com, financial default coverage is "provided usually in the event of a complete suspension of operations due to financial circumstances whether or not bankruptcy is filed." This means that you can only file a claim if your airline, cruise line or tour operator completely ceases operations. Many travel insurance companies require you to purchase your policy no more than 14 days after you make your first trip deposit for financial default coverage to be valid.

Before you purchase your policy, be sure to review the policy certificate to find out if financial default coverage is offered, and under what conditions. Some travel insurance policies, particularly those offering basic coverage and those offered by most airlines, don't include financial default protection, so if your airline shuts down, you'll be out of luck.

Financial default coverage does not protect you if your travel agency goes bankrupt. Travel insurance policies usually state that coverage applies only to travel suppliers, such as cruise lines, tour operators and airlines, not to the party that sold you your travel insurance. If your trip involves several travel suppliers – for example, if you're flying to your tour group's departure point – you will only be covered under the financial default provisions if you miss your trip entirely due to the financial default of one supplier. If alternate travel arrangements are available, such as another airline, you will probably only be covered for the amount of any change fees you pay.

Sound complicated? Wait, there's more.

Check the policy to find out if there's a waiting period before it takes effect. Some travel insurance policies require that the travel supplier's financial default take place at least seven days after the effective date of your policy for you to be covered.

Find out if the policy's underwriter has a list of approved travel suppliers, often called a "covered supplier list" or "white list." If your airline, cruise line or tour operator is not on the approved list, financial default coverage will not apply – in other words, if your travel supplier ceases operations, too bad for you. The lists can be surprisingly short. Elvia's Covered Supplier List, for example, doesn't include Delta Air Lines, US Airways, Virgin Atlantic, JetBlue, Lufthansa, Air Canada, Amtrak, Earthwatch Institute or Smithsonian Journeys, although most major cruise lines are on the list.

If you're considering travel insurance and want financial default protection, it's a good idea to:

  • Start early. You'll need to buy your travel insurance policy within 14 - 21 days of making your first trip deposit, depending on the policy.

  • Carefully read the policy before you buy it. Look for waiting periods, covered supplier lists and exceptions and determine if they apply to you.

  • Buy your travel insurance policy through an independent party, not through your tour operator, cruise line or airline.
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