Tricky insurance loopholes to watch out for

by John Fitzsimons on 24 May 2010  |  13 comments
Tweet

Watch out for these sneaky loopholes travel insurers use to get out of paying out claims!

My holiday plans for this year are a touch modest after the extravagance of my honeymoon last year. Never mind Antigua, I’ll be lucky to make it to Aberdeen this time around.

However, with summer now approaching at a rate of knots, for those of you that will be heading somewhere exotic, one big decision is the travel insurance you go for.

While getting a cheap deal is always desirable (and lovemoney.com’s travel insurance tool can help you do just that), what’s perhaps even more important is to get the right insurance cover. The devil is always in the detail with insurance, so it’s vital to know exactly what you are covered for, not just how much said cover will cost you.

Thankfully travel insurance broker PJ Hayman has put together a list of the sneaky loopholes travel insurers use in their policies to keep the premiums low, but also reduce the claims costs, which I’ll have a closer look at here.

Low levels of cover

This is perhaps the most basic way insurers can keep your cover cheap. They will either have very low limits for things like baggage, money or delays, or may not even offer cover at all in these areas.

So if you know that you are travelling with something expensive, whether it’s jewellery, some electronics or even ski equipment, make sure that the limits will actually cover you and your baggage.

Otherwise the policy is a complete waste of money.

High excesses

The counter to the low levels of cover are the very high excesses on offer from some policies. With all forms of insurance, the higher the policy excess you go for, the lower your premiums will be. However, according to PJ Hayman it is not always obvious just how high the excess level is with travel insurance until a claim is made, when the customer finds that most, if not all, of their claim is not covered.

Indeed there are currently policies available with medical excesses of £400, compared to the standard excess of £50-£75, with only a few pounds saved as a result of going for the former.

Per section excesses

This is a particularly naughty one in my view.

Some budget travel insurance policies will include excesses per person per section, rather than per event.

Here’s how it would work. Say you got mugged on holiday, and not only lost your wallet and had your clothes damaged, but you also ended up having to get medical treatment. Some budget policies will deduct various different excesses, for each section covered, rather than a single deduction for the entire event.

So for example, your medical costs might come to £450 with a £75 excess, your damaged clothing might amount to £250, with its own £50 excess, and you may lose £120 in cash, but with a £50 excess.

That would leave you with total excesses for the claim of £175, rather than a standard £75 excess on an event basis.

Pre-existing conditions

Not necessarily a surprising one this, but potentially a costly one. Some budget policies will not provide any cover if the customer has a pre-existing condition (perhaps heart problems) which results in a claim.

If you have any medical history which may impact on your policy in this way, be extra vigilant in ensuring that you will be covered should you suffer a flare up.

Specific exclusions

Some insurers will also include very specific exclusions in their policies to get their premiums at a rock bottom level.  This then enables them to turn down seemingly fine claims.

PJ Hayman cites examples of very strict interpretations of unattended personal effects, valuables and money as well as a requirement to get a written police report, which can prove difficult to obtain in some countries.

Vague exclusions

Some budget insurers will go the other way, and use terminology which gives them an almost guaranteed way out of paying out on claims.

An example is that some insurers will refer to an exclusion in their policy as a “set of circumstances that could be reasonably expected to give rise to a claim”. Quite what counts as reasonable is never explained, and completely down to the insurer’s interpretation.

Good luck getting a payout on this one!

Travel issues

Related how-to guide

Have a cheap holiday

Find out how to cut the cost of your flights, get discounts, tip correctly, spend wisely, get cashback and most importantly, cut the cost of your holiday.

See the guide

This loophole is a great example of that.

If you are delayed for whatever reason on the way to the airport and miss a connection, many budget policies will not cover the additional costs that you may incur as a result, things like an extra overnight stay.

Indeed some policies can get really sneaky. Good, comprehensive travel insurance policies will provide cover should your car break down on the way to the airport, and you subsequently miss your flight. However, a number of budget policies opt to only cover public transport issues, and not private vehicles.

Older baggage deductions

Anyone who has ever had to claim for something on their home insurance will know that generally they can expect ‘new for old’ cover. Basically, even though your items may be a couple of years old, the claim payout will treat their value as new.

One way that travel insurers are able to keep their premiums low on their budget insurance is to reduce the size of the claim depending on the age of the item involved. So if your baggage is a bit older, the amount you can expect in your payout may significantly drop.

Close relatives

Family illnesses are always a worry, but even more so if you are about to head off on a break somewhere.

Recent question on this topic

• champagne-girl asks:

  Just been delayed returning to UK from USA by 9 days, due to flying ban. Insurers say extra costs incurred not covered by travel insurance?

  • 
    SoftwareBear answered "You really need to deal with your airline .. it's their fault they couldn't fly you home when you..."
  • 
    SmudgeButt answered "after you check with the airline also check what other insurance you might have lurking. some..."
  • Read more answers

With most travel insurance policies, you will be able to claim for a cancellation of the holiday if a close relative falls ill. However, once again the devil is in the detail, this time in the definition of just what constitutes a close family member.

So a relative that you consider close, perhaps an aunt or uncle, may not fall under that category according to your insurer.

What all of this has hopefully shown is that while some travel insurance policies are staggeringly cheap, there is often a very good reason for that – your chances of making a successful claim are substantially reduced.

Yes, it’s important to get a good deal that won’t break your bank balance, but don’t just automatically go for the cheapest deal you can find – it pays to make sure it will really cover you for what you need.

More:  Free online banking tool | The best cards for spending abroad! | Six ways to slash your airfare

Compare travel insurance policies with the lovemoney.com travel insurance engine