Will travel insurance reimburse me for my prepaid, non-refundable trip costs if the cruise line or travel supplier goes out of business?
If you asked this simple question to nearly everyone who sells trip cancellation travel insurance, whether online or through a travel agency, you will get a definite “Yes” answer.
Unfortunately, you didn’t ask the right question, so this is potentially the wrong answer for your situation.
How do I know you’ll likely receive the wrong answer? Because I often encounter the wrong answer myself on many seemingly simple questions. For 20 years, I’ve acted as a secret shopper by calling, emailing, or using online chats with my competitors. Despite being simple and direct, I often receive vague answers that provide me with no useful information.
Back to Supplier Financial Default: You thought you were asking “Will travel insurance reimburse me for my prepaid, non-refundable trip costs if the cruise line or travel supplier goes out of business, whether I booked directly with them or through a travel agent?”
Without reading the policy wording or visiting my extensive website at TripInsuranceStore.com, most people wouldn’t naturally consider including the phrase “whether I booked directly with them or through a travel agent.” In other words, you might not realize that using a travel agent is relevant for Supplier Financial Default coverage with most travel insurance plans.
Your question has two mutually-exclusive right answers, depending on the travel insurance plan’s wording:
Answer #1, for most travel insurance plans, the answer is “No, you are not covered for Supplier Financial Default if you booked directly with the Travel Supplier.
Most travel insurance plans state that their Supplier Financial Default coverage is for the 3rd party. For these plans, if you book a trip directly with the travel supplier, you are not covered for Supplier Financial Default because there is no intermediary to be the 2nd party. If you booked with a travel agent who, in turn, made your cruise or tour’s travel arrangements, the travel agent is the 2nd party and the cruise line is the 3rd party.
Here’s some sample wording (emphasis mine): “Financial Default of a Travel Supplier provided the Financial Default occurs more than 14 days following the Trip Cancellation benefit’s effective date. There is no coverage for the Financial Default of any person, organization, agency, or firm from whom the Insured purchased travel arrangements.”
Financial Default doesn’t cover if the travel agency you use goes out of business. Ideally, the travel agency stores its clients’ funds in an escrow account while the money is in their possession.
Answer #2, for a very few travel insurance plans, the answer is “Yes, you are covered for Supplier Financial Default if you booked directly with the Travel Supplier.
These few travel insurance plans state something like this:
“The Financial Insolvency or Financial Default of an entity that directly provides Travel Arrangements, including an Air Common Carrier, cruise line, tour operator, or other travel entity that causes a complete cessation of travel services if the Financial Insolvency or Financial Default occurs more than 14 days following Your Effective Date for Your Trip Cancellation benefit.
Benefits will be paid due to Financial Insolvency or Financial Default of an airline only if no alternate transportation is available. If alternate transportation is available, benefits will be limited to the change fee charged to allow You to transfer to another airline in order to get to Your intended destination.”
Q. How is Supplier Financial Default defined?
A. A common definition of Supplier Financial Default is “a complete suspension of operations due to financial circumstances whether or not a bankruptcy petition is filed”.
In other words, just the act of filing for bankruptcy or becoming bankrupt doesn’t necessarily qualify as a valid Financial Default claim. The Travel Supplier has to completely cease operations.
I hope this makes sense. If you want the right travel insurance advice, call us at 1-888-407-3854 and we'll help you figure it all out.
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