Does travel insurance cover the cost of a cruise line or a travel supplier going out of business?
If you were to ask this simple and straightforward question to nearly anyone who sells trip cancellation travel insurance, whether online or through a travel agency, you will get a definite “Yes” answer. You also might get an explanation of how long the policy has to be in force (typically 14 days after purchase).
Technically, this is the right answer, but you didn’t ask the right question, so this is potentially the wrong answer for your situation.
How do I know you’ll likely get the wrong answer? Because I get the wrong answer myself on many seemingly simple questions. For 20 years I’ve called my competitors, emailed them and used their online chats as a secret shopper. I often get vague answers that tell me nothing no matter how simple and direct I am.
Back to Supplier Financial Default: You thought you were asking “Does travel insurance cover the cost of a cruise line or a travel supplier’s going out of business that I booked directly or even through through a travel agent?“.
A normal person wouldn’t think to include the phrase “that I booked directly or even through through a travel agent”. Unless you have read your policy or my huge website at TripInsuranceStore.com, you wouldn’t realize that using a travel agent is relevant for this coverage with the majority of travel insurance companies.
Depending on the travel insurance plan, there are two right answers to your question:
Question: “Does travel insurance cover the cost of a cruise line or a travel supplier’s going out of business that I booked directly or even through through a travel agent?”
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.
The wording in most travel insurance plans state that the Financial Default coverage is for the 3rd party. For these plans, if you book a cruise or tour directly with the cruise line or tour company, 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: “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.”
In other words, Supplier Financial Default does not cover where you arrange / book your travel. For example, if you use a travel agency and it goes out of business. Ideally, the travel agency uses an escrow account to store its clients’ funds while the money’s in their possession. You are not covered for Financial Default for money the travel agency hadn’t paid to the travel suppliers.
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.
The wording in these few travel insurance plans state something like:
“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. What is Supplier Financial Default?
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 3rd Party (not who you booked directly with) 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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