Everyone has heard the horror stories: An evil travel insurance company denies the claim of another decent individual. Here is a recent example: An 80 year old man went on a cruise and accumulated $107,000 in medical bills after he fell sick with pneumonia which led to complications. The insurance company denied his claim. (As you probably guessed, lawyers eventually got involved). Several stories like this have many people believing that insurance companies NEVER pay claims. So the question is: Is travel insurance just a big scam? The short answer is no, but there are definitely things you need to know to help avoid becoming another tragic story.
First off, travel insurance is generally a good type of insurance to buy. “Good insurance” means paying a reasonable upfront premium to transfer a large financial risk from yourself to an insurance company. By contrast, extended warranty on your iPod can be considered “bad insurance” because the premiums are expensive and a broken iPod, although annoying, will probably not ruin you financially. Since medical costs are extremely expensive (i.e. the average hospital stay in Canada costs $7000 a day) travel insurance is a smart way to protect yourself from the potentially crippling costs of a medical emergency.
Of course that all depends on the insurance company actually paying a claim when the time comes. Claim payout rates in the insurance industry are highly guarded, but there is some anecdotal information available. In a recent article by the Chicago Tribune, the US Travel Insurance Association indicated that approximately one in six policyholders file a claim, and fewer than 10 percent of those claims are denied.1 According to Canadian insurance broker Travel Insurance Office Inc, approximately 9% of travellers have a claim, and less than 7% of those claims are denied.2
So it looks like there is at least some evidence of insurance companies paying out claims. But how can you make sure an insurance company will pay YOUR claim, without getting expensive lawyers involved?
One way to protect yourself is to actually think like a lawyer when buying travel insurance. No, you don’t need a law degree from Harvard, but you do have to understand that an insurance policy is a legal contract. If there is a claim, the insurance company is going to go back that contract, which includes your insurance policy and any applications or questionnaires you completed.
In the insurance world, claims are very black or white, yes or no, covered or not covered. With that in mind, here are some tips to help keep that dreaded “denied” stamp in the insurance company’s holster:
Read the policy: Contrary to popular belief, not everyone who works for an insurance company is evil. When a claim is denied, some insurance insiders sincerely wonder: “Didn’t they read the policy?” Many claims are denied because the policy specifically excludes the item in a section appropriately called “Exclusions.” Other denials are due to claims that are simply not covered by the policy, or the amount claimed is less than the policy’s deductible. The lesson? Read and understand the policy before you buy.
Answer the medical questions truthfully and fully: Unfortunately, many medical questionnaires are often long and confusing. To fill out the questionnaire fully and accurately, you may need to consult your doctor, pharmacist, or a relative who knows more about your medical history. Don’t leave your travel insurance to the last minute. The majority of claim denials are a result of people rushing through the questionnaire, or not inquiring about items they were unsure of. One insurance agent remembers asking his client, “Do you have high blood pressure?” The client’s answer, “No. The three medications I take keep it normal.” Remember, how you define terms is irrelevant, it’s the language in your insurance contract that counts