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Cancellation Waivers Versus Insurance

by Laurie Berger, L.A. Times – March 27, 2005, Travel Q & A

Question: I recently booked a $6,000 family vacation package to Maui with American Airlines. The representative strongly urged me to purchase a $236 cancellation waiver in the event we couldn’t go at the last minute. Is that a good idea? Or is it similar to the insurance policies that car rental companies are always pushing?

Bella Shaw, Santa Clarita

Answer: Cancellation waivers are not insurance. They’re supplier-backed “guarantees” with lots of strings attached.

Travel agents, cruise lines and tour operators (airline vacation desks among them) increasingly are pitching these add-ons because they’re profitable. In that way, they’re similar to car rental firms that push insurance.

It’s easy to see why consumers take the bait. Waivers, in some cases are more flexible than traditional travel insurance. You can cancel any time for any reason Ñ even a bad hair day Ñ and still get your money back.

They’re also cheaper. Waivers cost a flat $40 to $60 per person compared with insurance policies, which generally run between 5% to 7% of the total trip price.

But you get what you pay for.

Unlike comprehensive travel insurance, waivers cover only pre-trip cancellations. You’re out of luck if the vacation is cut short by illness, delays, weather or terrorism.

Some plans do not allow cancellations the week before departure, when most travelers back out of their trips. And those offered by cruise lines, in particular, refund in future credits, not cash.

What’s more, waivers are unregulated. “You’re at the mercy of the travel vendor if anything goes wrong or the company defaults,” said Pete Moraga, a spokesman for the Insurance Information Network of California. “It’s buyer beware.”

Like many travelers, our reader was not familiar with travel protection and hadn’t considered safeguarding her just-booked $6,000 vacation until a reservation agent pitched the waiver.

“You know what life is like; anything can happen,” Shaw said she was told. She spent the extra $236 for four waivers.

On our advice, Shaw called American back for details and was told the waiver did not cover trip cancellations within a week of departure. After hearing this, she canceled the waiver and began researching other options.

When we asked American Airlines Vacations President Dan Westbrook about it, he set the record straight. “It does cover week-before departures,” he said. “It could be that the reservations agent misstated the policy. You can cancel anytime.”

A company spokesman also assured Shaw that there was a money-back guarantee and she would receive a cash refund if she decided to cancel her vacation. The sales agent had talked about such a guarantee but wouldn’t put it in writing. There is no mention of it in the terms and conditions on American’s website.

Although American’s waiver doesn’t cover trip interruption, the airline does offer “on-trip” support, Westbrook said. Passengers can call a toll-free, 24-hour emergency number if problems arise. The airline will rebook canceled flights, find other hotels if rooms are overbooked and secure refunds for any part of the package that is not delivered.

But none of this is guaranteed. “How it works out is not spelled out,” Westbrook said. “It’s up to the goodwill of the airline and its partners.”

For those who need more guarantees, travel insurance may be a better bet. Given that she had two children in tow and elderly parents at home, Shaw might have been better protected with a traditional policy from a reputable third-party provider. For about $400, or almost double the cost of the waiver, Shaw could have bought a lot more protection. But after shopping around, she decided insurance was too expensive and confusing.

Shaw wanted a quick fix, so she asked American to reinstate her cancellation waiver. American went one step further and promised that if she had to cancel her trip, it would refund the money she spent for the vacation and would give her $236 in future credits for the waiver she had bought. Shaw was happy with that.

What’s the best way to safeguard your next vacation?

Beware the hard sell. Travel companies offer protection because they profit from each sale. And the pitches could intensify in coming months, as financially struggling airlines step up efforts to improve their bottom lines, said Darryl Jenkins, airline consultant and visiting professor at Embry-Riddle Aeronautical University. Ask questions, read the fine print, and don’t buy under pressure.

Know your risk. If you’re worried about medical issues, weather or terrorism or simply can’t afford to lose your travel investment, it pays to buy traditional travel insurance. But if all you want is a little peace of mind and flexibility before the trip starts, cancellation waivers may do the trick.

Don’t overpay. Travel insurance often comes bundled with lots of protections that may already be covered by medical, homeowners and auto insurance. Check your policies carefully before buying insurance. And don’t purchase more than what covers the price of your trip.

Comparison shop. Travel insurance is not bulletproof. There is a dizzying array of policies on the market, wrapped in enough fine print to give anyone brain freeze. Get buying tips, and compare plans at the TripInsuranceStore.com

Ready to Purchase? It's easy and safe to purchase online or over the phone - just call Deanna, Kim or Steve at 888-407-3854 or 507-214-3854.

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PPS - Even though TripInsuranceStore.com is the world's most informative travel insurance website, you are still responsible to know the coverage terms, conditions, limitations, and exclusions of your plan. No comments or explanations confirm or deny coverage. You need to refer to each plan's policy wording.

PPPS - The Trip Cancellation coverage begins at 12:01 a.m. on the day after the date the policy is purchased. All other coverages begin when you leave home for your trip when your departure date is in the future.

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