This is not a rant against purchasing travel, or trip, insurance. This is a rant about following the other lemmings off the cliff. I realize that other countries have a different medical insurance paradigm than we do in the U.S. And I have to assume the prevalence of, for example Brits, purchasing a policy whenever they travel is due to the workings of health coverage in their home country. Even in the U.S. policies and coverage vary greatly depending on where you live. But it doesn’t matter. Regardless of the underlying insurance scheme, the process of deciding whether or not to purchase some form of insurance to cover possible loss or injury while travelling is the same. Or should be. It should be a carefully thought out decision, not the knee jerk reaction that travel insurance is a must because everyone else buys a policy.

A while back there was a thread on SGT about travel insurance with the usual suspects providing pompous commentary, in this case stating anyone who travels without purchasing travel insurance is a fool. I originally considered posting a response there but realized instead of providing a reasoned alternative to that general (faulty) assumption, doing so would only provide the buffoons who flood that board with their inane comments an opportunity to go on point. So I’ll post this here instead. Those who choose to consider it, I hope, will think a bit before automatically purchasing insurance for their next holiday.

Purchasing a policy for coverage while on holiday is not a necessity. It’s a choice. And it is not your only choice in how you decide to handle potential risk. Insurance is just one form of risk management. You have three options to select from in dealing with any risk. You can retain it, reassign it, or avoid it. (I guess you can also ignore it, but that is just an ill-informed method of retaining the risk.) Purchasing an insurance policy is the middle of the road option.

Retaining a risk means that you decide that should a problem occur, you will deal with it on your own. Some refer to this as being self-insured. This is not an option you should choose on a whim but rather after careful consideration of both the probability of a problem occurring and your ability to cover the loss if it does occur. In most cases, this means being financially capable of handling problems as they arise.

Grandiose statements such as that you need at least a million dollars in cash tucked away if you decide to retain the risk for a trip to a foreign land, only prove how stupid and uninformed some people are. First, no one has a million dollars in cash lying around in liquid form. Or at least no one who has a million dollars is dense enough to have that amount sitting in cash and not earning a return. And just what calamity do you think will occur that takes a million dollars to cover? Be realistic about the amount of money that may be required should you experience illness, injury, or some other loss while on holiday. If you can cover that cost, retaining the risk may be an intelligent decision.

Avoiding the risk is the other less travelled road and only mentioned because it is one of your three options. In this case that means you decide your best choice is to not take the trip. Don’t immediately discount this option. It may only mean, for example, during a period of social unrest you decide to postpone your planned holiday until things cool down.

That leaves us with reassigning the risk, which almost always means purchasing an insurance policy. The risk is still there, but rather than take on the responsibility, for a fee, you assign the risk to someone else: an insurance company. Whose business is risk management. Think about that for a minute. The insurance industry thrives on accepting people’s risks. If the odds were not heavily in their favor, they would not be in business. Instead it is a growth industry with high profits. Thanks to those who immediately assume the best option for risk management is to always reassign the risk to an insurance company.

It is a pass/no pass type of betting scheme, offering house odds that Vegas casinos would kill for. Thousands of time daily, the roll of the dice comes up craps. The house wins, the insured crap out. That doesn’t mean purchasing insurance is a bad bet. It means, with the odds stacked that heavily against you, you really need to think about the bet you are placing.

Typically the risks you are insuring against are illness, injury, harm to others, loss, and delay. Your ‘win’ is funds to cover those occurrences should they transpire. Do you need an insurance policy to cover these risks? Maybe. And maybe you already have some coverage. Before purchasing an insurance policy you should check to see what other coverage you already have.

Some major credit cards offer a free policy that covers loss and delay while on holiday. Additional costs due to travel delays may be covered through these free policies; the airline or travel group you are using may have automatic coverage for these types of loss too. I even have coverage through a group membership that replaces flight insurance: there’s a hefty pay out to my beneficiary if my plane crashes and I die.

If you have medical insurance, your policy may cover you when out of the country and may include coverage for medi-vac costs. Checking the procedures required, as well as the coverage offered, on this type of policy is a smart move before your trip. And before you need to rely upon it. It may negate the need for additional coverage. More importantly, if a problem does occur, you’ll know what you are covered for and the steps you need to take to receive that coverage.

You may have coverage through a group plan provided by your employer that accepts some or all of the above risks. Some group memberships, like AARP also provide additional coverage. Before you duplicate the coverage you already have, you should find out what losses you already are insured against. It may be that you only need to cover a small number of risks, or extend the coverage already in existence. An annual rider through your primary insurer to handle the additional level of risk may be all that is necessary. And it probably will provide better coverage at a smaller cost than a full trip-specific policy.

Reading insurance policies is pretty dry stuff whether it is for insurance you already hold or a policy you are considering. But, as they say, the devil is in the dstails. Assuming you are covered for a specific risk only to find out when you experience a loss that that event was not covered is not a good surprise. An off the shelf policy may not even cover the specific risk that troubles you the most. It’s kinda like buying your plane ticket without checking to see what dates you’ll be flying. You end up holding what amounts to a worthless piece of paper.

Insurance policies are written in the negative. They do not tell you what you are covered for, but rather start with saying they cover everything. And then start listing exceptions to that rule. These are known as exclusions. And they are the important part of the policy (well, one of them). You need to carefully read the exclusions to make sure you are covered for the risks you want to reassign. Acts of god and acts of war are often exclusions. Both apply to a wide range of events. Assuming you are safe just because you bought a policy is as bad bet. Not reading a policy is gambling with your security.

Your policy is also limited by limits. There are usually maximum amounts, both per incident and aggregated, that the policy will pay out. Is it enough? You should have an idea of the amount of money you may need should an accident happen to insure you are still not left hanging, even though you bought an insurance policy. It makes little sense to purchase insurance and then be under-insured. Prepackaged policies often play off the gullibility of the purchaser. They are cheap and offer little in the way of financial remuneration. The policy you bought because someone told you that you needed travel insurance may offer little or no coverage should a loss occur. If you are going to spend the money, make sure it is a considered decision and that you are actually reassigning your full risk.

Deductions, the amount you must first pay when a loss occurs, is a way for the insurance company to reassign part of its risk back to you. Usually the higher the deduction , the lower the cost of the policy. Can you afford the amount the deductible part of your policy requires? It might be a smarter move to pay a higher premium and have a lower deductible. Or maybe it would benefit you to accept a larger portion of the risk and lower your premium instead.

Lastly, and only because this is a very shallow discussion about risk management, is the ability of the insurance company to pay out should a loss occur. Insurance companies are rated on their ability to cover losses. If you have no loss, no problem. If you have a large loss, and you selected a company without the capital required to cover your loss . . . . well, buyer beware. You may think that is nitpicking, that any insurance company is capable of covering your loss. But, first, that is not true. Others have made that bet and lost. Second, if you are considering the options of managing your risk, should you not be considering all aspects? Or are you instead taking the lemming approach and just following the others blindly over a cliff?

I am not saying purchasing insurance to cover your risks while on holiday is a bad idea. What I am saying is that it is a financial decisions that should be thoughtfully decided upon. For some, provided they really took the time to ensure they are insured for what they think they have coverage for, the peace of mind is worth the price. For others, gambling that no loss will occur is the way to go. And for some, crunching numbers suggests the possibility of losses can be covered by money already on hand. A blanket statement that purchasing travel insurance is stupid, is of course stupid. But so is saying anyone who chooses to not do so is.