Sunday, December 9, 2007

Why you dont need travel insurance

I was reading this Sydney Morning Herald article (see Source: The Sun-Herald ) on travel insurance. Surprisingly to me it was favorable towards buying insurance. I can find few instances that would warrant travel insurance. I think its mainly used by business as a perk for the sake of their employees. Frankly as an employee I would prefer the cash. But then maybe companies get better terms? As an employee traveling to Colombia & Venezuela, I was 'green' (innocent) enough to not lock my luggage. I claimed for the theft of a new pair of shoes and a CD player. I bought these for $200 from Broadway, USA en-transit, but since Sony gave me a replacement quote of $350, I actually made a profit. Even still I dont think you should get travel insurance.

Here is why I think you shouldn’t buy travel insurance:
1. You can manage risk – so why buy insurance to protect you – it cant protect you from fatal injury by a thief or murderer who like to prey on tourists
2. Most countries are likely to be cheaper than your own for medical attention
3. Most conditions you are likely to have will not be covered, will be minor, or can be treated after you return.
4. Most countries have modern medical centres or hospitals with quality service, so you might be better off finding out where they are
5. If you don’t know much about the country you are going to, then you don’t know enough to buy travel insurance
6. Insurance companies don’t offer comprehensive cover. They have long contracts which specify all the limitations on your policy. Little surprise that a Insurance Ombudsman in Australia has remarked on the number of travel insurance-related complaints. If you want travel insurance, read the fine print. There is a definite gap between people's expectations and reality. Insurance companies are not clear on what is covered and what is not covered.
7. Insurance companies don’t make all the ‘fine print’ readily available. Behind every insurance policy is a ‘product disclosure statement’ setting out everything you need to know about the product. Since the statement are as long as 85 pages long, should it surprise anyone that they are not read.
8. Services overseas might actually be better overseas than at home. You might question whether you need health insurance (see my article since its cheaper to get treated overseas.
9. Insurance companies are charging you to make a premium – you will go on many trips – just consider it a risk spread over many trips, where your risk will fall with your travel experience
10. Insurance companies don’t like surprises – so they tell you what they will insure, not what they will insure. So if your claim is bazaar it will be rejected.
11. Insurance companies actually exclude all the high risk activities where you would actually want protection. Worse news still is that adventure tour groups (say rafting companies) will get you to sign a disclaimer too, so you will not be covered for anything really risky!!!
12. You are not likely to read your policy statement to see if you are covered. Instead you will act on the spur of the moment….whether you are insured or not. So why bother?
13. Insurance is claimed by the bag people. Most people are too clever to get it, only idiots and cheats get it, so you are subsidizing them, when they should be castrated.
14. Policies vary, but some exclude claims for loss or damage suffered because your airline goes broke and stops flying and you can no longer travel, or you travel to certain countries or against the advice of the Australian Government. Again, another case of excluding the real risks you face. So since the Philippines is a terrorist state, I guess having my wallet stolen at the airport is not covered? See for countries where you cant fly. I wonder getting a new passport would be covered if it was stolen? Will they cover you if a country becomes a terrorist state after you buy.

Some exclusions are reasonable, eg. Non coverage if your travel plans change, or you failed to check if you need a visa (even though your travel agent is obliged to tell you). They don’t cover cash stolen.
Some insurance companies don’t insure you if you don’t report the crime to police.
You need proof of ownership of the goods. Do you have receipts for your valuables?
Many travel insurance schemes do not have an ‘excess’ but that should be a red flag
When to use insurance?
So when would a travel insurance policy make sense? Well it might make sense if you are carrying some weighty contingent liability like a bond over your hire car. Eg. What if I was hiring a $70,000 campervan? Well the campervan company has insurance, but maybe the travel insurance company offers less restrictive terms? Then that could be justification for insurance.
You would think that you might want it if you are carrying digital cameras or computers, but then I think the risks are not so great, and security is so much better these days with video surveillance. Anyway, what is the value – the $500-1000 Dell computer or all the data on it? You were probably due for an update anyway, and you still have to go out and buy another. But guess what? Computers are excluded from an item you can claim? Why? Its too easy to loose them and claim on them?
Disputing a claim
The only positive aspect of insurance is having a internal dispute resolution process – that is an Insurance Ombudsman ( for Australia) to independently assess your complaint. But even then I have found that the insurance company will win if they are not in breach of the law, though many people would argue that a 85-page contract is an excessive imposition. There were 2255 travel insurance complaints in 2006-7, with half in the travelers favor. That is a very high rate. That suggests to me that insurance companies are trying to breakdown the unknowing or tired (me at 20yo) traveller by rejecting even reasonable claims. Why? It helps to increase profits.
Want the insurance companies perspective – read
Examples of rejected claims
Its interesting to look at claims that are commonly rejected:
1. People over 60yo with a pre-existing medical condition, usually related to heart disease
2. Travellers with an alleged pre-existing medical condition which flared up after years of no problem. Eg. You had a heart condition cleared by your doctor, so you are judged fit to travel, but when the doctor is proved wrong, your claim is rejected because there was deemed to be a pre-existing medical condition. These problems arise because the insurance companies are using travel agents to sell insurance and they are not telling 75-year-old travelers the conditions pertinent to them.
3. If something is stolen, you need to demonstrate that the item was not left "unattended", whether it was a camera left on a seat or a wallet left in a hire car. The insurance company defines what "unattended" actually means - but commonsense and insurance company standards will prevail. Leaving luggage right behind you in a hotel lobby while you check in could be considered as unattended.