Travel Insurance FAQ

Understanding Financial Default Coverage

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From Fodor’s Travel Discussion Forum (You can find the full conversation here):

“If you’re booking with a company outside of the US and they go out of business will basic trip insurance that says it covers “supplier bankruptcy or default” reimburse you? Or is there some loophole if you can’t “prove” there is 100% cessation of business? I’m imagining how they’d try to get out of it if you can’t really prove anything besides the fact that they no longer respond to calls or emails.”  -Leslie

Squaremouth’s response:

The travel insurance benefit you’re referring to is called “financial default,” which is the complete suspension of operations due to financial circumstances.

There are a few things that are important to note about this coverage.

First, some policies require an operator to have filed bankruptcy in order to claim the benefit. Others do not require bankruptcy, as long as all operations have ceased. Be aware that many policies have a limit on the time between making the initial trip deposit and purchasing the coverage. Many policies also require that a minimum amount of time passes between purchasing the coverage and the financial default of an operator. Finally, review a policy’s definition of “common carrier,” “travel provider,” or “tour provider,” as there may be differences in coverage based on this.

Now, to answer your question: In the event that you need to make a travel insurance claim under the financial default benefit, you would need to obtain some sort of statement or record which gave evidence of financial default. If you were able to book travel with a business prior to leaving home, chances are that they were legitimate and there should be a record of their financial default. Remember to keep receipts for all prepaid, non-refundable trip expenses because if you file a claim, you will be required to provide proof of payment.

All of the information you need regarding coverage stipulations and definitions can be found in your policy’s certificate.