Financial Default Coverage

What is Financial Default Travel Insurance?

Financial Default is a travel insurance benefit that can reimburse you for the cost of your trip if your travel supplier unexpectedly ceases or suspends operations due to financial insolvency.

Financial Default coverage typically applies if your travel supplier goes out of business before or during your trip. This often includes your:

• Airline
• Common carrier
• Cruise line
• Tour operator

Some providers may also extend coverage to reimburse hotels, accommodations, and rental car companies.

This benefit typically triggers coverage for pre-trip and mid-trip reimbursements that result in a complete cancellation of your trip before you set out, or a sudden halt to your planned trip if the supplier ceases operations while you are away.

Most policies can reimburse you for up to 100% of your pre-paid, non-refundable trip costs if you are forced to cancel before setting out, and up to 150% of your trip costs if you are stranded mid-travel. However, these limits vary by policy.

It’s important to note that not all travel insurance policies include this coverage. Exclusions, limitations, and eligibility requirements for this benefit often differ by policy.

Try our quote tool and filter for policies that offer Financial Default coverage.

Examples of Financial Defaults & Insolvencies

Recent examples where this coverage could come into play include:

• The sudden closure of the hotel chain Sonder
• The financial insolvency of Spirit Airlines

Many travel insurance providers have lists of known insolvencies or potential insolvencies, which can guide you in understanding which situations may be covered or excluded.

While this occurrence sounds rare, it’s more common than you may expect. As an example, one of Europe’s largest tour operators, FTI, filed for financial insolvency in 2023\. This move impacted the travel plans for thousands of customers, leaving travelers from around the world scrambling to make new travel arrangements and recoup any related trip expenses.

What Does Financial Default Insurance Cover?

If a travel insurance policy includes the Financial Default benefit, that means that supplier default is listed as a covered reason under the plan’s Trip Cancellation and Trip Interruption benefits.

If you are forced to cancel or interrupt your travel plans due to bankruptcy or financial insolvency of a travel supplier, you may be eligible for a full reimbursement of your prepaid, non-refundable trip costs.

If your airline or other travel supplier suspends travel due to financial circumstances, but alternative transportation is available, some travel insurance plans will cover the change fee costs to book new airfare.

Here is a closer look at the two main ways you can receive coverage:

Pre-Departure Trip Cancellations

If your travel supplier suddenly shuts down before your trip has started, Financial Default coverage may qualify you to receive a 100% reimbursement of your prepaid trip costs, minus any eligible refunds.

For this coverage to apply, you must meet the eligibility criteria outlined in your policy. When filing a claim, be prepared to provide ample proof that your trip has been fully cancelled.

Mid-trip Interruptions

If you are already traveling and your travel provider unexpectedly ceases operations, this could leave you stranded and left to pick up the pieces.

However, policies with the Financial Default benefit can trigger your Trip Interruption coverage, allowing it to take over and reimburse you for alternate arrangements.This can mean allowing you to continue your initial planned trip after making any necessary adjustments, or reimbursing the cost to return home early, plus any unused or unenjoyed portions of your planned itinerary.

What Does Financial Default Insurance Not Cover?

What is covered and not covered varies greatly from policy to policy. Therefore, it’s important to always read each policy’s Certificate of Insurance before making a decision on which provider to go with.

That said, here is a list of exclusions that are sometimes found with Financial Default coverage:

Foreseen Insolvencies

Travel insurance is designed to cover unexpected and unforeseen events only.

This means that if a financial insolvency is expected, has been spoken about as a possibility, or reported on by news or company memos, Financial Default coverage may not apply, depending on when you purchased your coverage.

If you bought your policy before the insolvency was known about or reported on, then your financial default coverage would likely apply if you meet your policy’s other coverage requirements.

If you bought your policy after the insolvency was known about or reported on, then any claims made that result from financial default would not be covered by the travel insurance policy.

The only travel insurance protections that will cover you for foreseen events and still allow you to receive financial reimbursement are Cancel For Any Reason & Interruption For Any Reason coverage.

Fraud or Negligence

Most policies that offer Financial Default coverage include specific clauses excluding fraud and negligence by the travel supplier.

For policies that include this exclusion, it means that if the insolvency was brought on by fraud or negligent misrepresentation by the travel supplier, then Financial Default coverage will not apply.

Travel Agency Middlemen

Some policies only cover financial default if the company actually running your trip shuts down. This can mean that middleman agencies, like one used to purchase your travel package, may not be covered if they shut down.

For example, if you buy a cruise vacation package from a travel agency, and the agency shuts down but the airline and cruise line you’re booked with still remain operational, you likely won’t be eligible to claim financial default coverage for the travel agency’s closure under certain policies. That said, this caveat varies by policy and provider, so it’s best to review the exact policy exclusions before making a purchase.

Specific Travel Suppliers Not Listed in the Policy

Although not the case for every insurer, some travel insurance providers exclude reimbursing financial default claims unless the travel supplier is listed as part of an approved list of suppliers found in the policy’s Certificate of Insurance.

Check to see if your policy has a list of approved providers. If not, then your policy might offer broad coverage for travel supplier default.

Since this varies from provider to provider, it’s important to read your policy thoroughly to understand how your coverage may and may not apply. Ultimately, if you have doubts about coverage and exclusions, it’s best to reach out to your travel insurance provider for clarification.

Eligibility Requirements for Financial Default Coverage

Even though a policy lists Financial Default coverage as an included coverage, there are certain conditions that must be met for coverage to apply, such as the following.

Purchase Within the Time Sensitive Window

Financial Default coverage is a time-sensitive benefit, which means it’s usually only available for purchase within 10-21 days after making the initial deposit for your trip, with this window varying depending on the policy.

Even if a policy lists Financial Default as a benefit, you may not be able to make a successful claim under this coverage unless you purchased it within the time-sensitive window.

Complete Cessation or Suspension of Services

Exact coverage varies by provider, but typically, for financial default coverage to apply, the travel supplier must cease all services and operations due to insolvency. Several policies refer to this as “total cessation or complete suspension of services” which can mean a temporary or permanent shutdown of the travel supplier’s operations.

Some policies also stipulate that there must be insolvency without a bankruptcy filing for coverage to apply; however, this varies by provider and plan.

Waiting Period for Making a Claim

Most policies come with a waiting period that states that the financial default must occur a certain number of days after your policy’s effective date for you to be eligible for coverage. This varies by policy, but typically ranges from 14 to 30 days after your policy takes effect.

Most travel insurance providers will not offer coverage if the insolvency occurs before the waiting period. Therefore, it’s a good idea to purchase your travel coverage early to give yourself the best chances of being eligible for the benefit.

Scheduled Departure Date Limit

Although rare, some providers only offer Financial Default coverage if your scheduled departure date is less than 12-15 months after the policy’s effective date.

For example, if you buy your policy on January 1st, your pre-trip coverage benefits, like cancellation protection, would typically start the following day and cover you up until your scheduled departure date, when mid-trip benefits, like interruption coverage, take over.

Therefore, some providers stipulate that your effective date and departure date be no more than 12-15 months apart for this coverage to apply.

Examples of When You May Not Be Covered

There are a few examples when you may not receive coverage, including:

• If you waited too late to purchase insurance
• If your trip costs are refundable
• If the travel insurance you bought was provided by the insolvent supplier

Here is a closer look at each of these examples.

You Purchased Insurance Too Late

As mentioned above, travel insurance is designed to cover unforeseen events, and most policies offer financial default coverage as a time-sensitive benefit with a designated waiting period.

For all of these reasons, you’ll want to ensure you buy coverage as soon as possible. This will give you the best likelihood of securing time-sensitive benefits, qualifying for the waiting period, and also buying before an insolvency becomes foreseen or announced.

Your Costs Are Refundable

Travel insurance only reimburses non-refundable costs associated with your trip. Therefore, if you are eligible for a refund for part of your travel arrangements, your insurance policy will require you to request the refund before deciding whether to reimburse you for these costs.

You Purchased Travel Insurance Directly Through The Insolvent Travel Supplier

If you bought your travel insurance through the travel supplier that has gone bust, the travel supplier might not be able to make good on insurance claims. This typically depends on whether the policy was underwritten by the travel supplier directly or by a third party.

This is another reason we always recommend opting for third-party travel insurance policies when possible.

Try our quote tool and filter for policies that offer Financial Default coverage.

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FAQs: Financial Default Travel Insurance

Is Financial Default the Same as Bankruptcy?

Financial Default and Bankruptcy are two slightly different circumstances as they relate to the insolvency of a travel supplier.

Financial default means the company ceases all operations and services, whereas bankruptcy means the company enters legal proceedings to try to recover financially. With Bankruptcy, travel services may continue to be offered by the provider, but with a financial default, the provider shuts down completely.

Most travel insurance policies only provide coverage for financial default.

Does Travel Insurance Cover a Closed Airline?

Yes, travel insurance policies that include Financial Default coverage can cover you for the sudden closure of an airline if you meet your policy’s eligibility requirements. An airline’s insolvency could qualify you to cancel your trip altogether and receive a reimbursement, or allow you to make alternate travel arrangements and receive a reimbursement.

That said, for this coverage to qualify, you must buy a policy before the insolvency has been announced and classified as a foreseen event.

Will Travel Insurance Cover Me if Spirit Airlines Goes Under?

Spirit Airlines’ financial insolvency is now considered a foreseen event and is not covered by most travel insurance policies’ trip cancellation or trip interruption benefits.

Some providers have considered it a foreseen event since as early as 2024.

For example:

• Travelex considers it foreseen as of August 29, 2025
• WorldTrips considers it foreseen as of Oct 28, 2024

That said, if you buy travel insurance, you could still receive coverage for:

• Trip Delays unrelated to a total shutdown. For example, this could be if Spirit’s financial issues lead to staffing shortages or mechanical issues, which cause a delay.
• Baggage delay/loss, unrelated to the insolvency.
• Medical coverage, which is unrelated to the insolvency.
• CFAR, which allows you to cancel your trip even for reasons excluded by standard cancellation coverage.

Do Annual Multi-trip travel insurance policies cover bankruptcy?

Some providers, like Trawick, offer annual travel insurance policies with financial default coverage, but generally speaking, most annual travel insurance policies do not include this type of coverage.

Am I Eligible for Financial Default Coverage?

The majority of travel insurance providers will include specific requirements that must be met before you’re deemed eligible for this coverage. Requirements for specific plans can be referenced anytime within a policy’s Certificate of Insurance.

To be eligible for financial default coverage, you may need to meet the following criteria:

• Purchase Date: As with other covered Trip Cancellation reasons, the related event must occur after your policy’s effective date.
• Time-Sensitive Purchase: Financial Default is a time-sensitive benefit under some plans, meaning you need to buy travel insurance within 10-14 days of your initial trip payment to be covered.
• Wait Period: Some plans may require a wait period, typically 10-30 days after your effective date, before coverage begins.
• Trip Payment: While rare, a travel insurance provider may require you to purchase a plan prior to making your final trip payment to be eligible for Financial Default coverage.

Do All Trip Cancellation Policies Cover Supplier Default?

No, not all travel insurance policies with Trip Cancellation coverage and Trip Interruption coverage will list supplier default as a covered reason. If you’re concerned about a travel supplier going out of business, you can reference the table below, or use Squaremouth’s “Financial Default” filter to find travel protection that meets your needs.

If your travel insurance coverage does not include the Financial Default benefit, you may have other options available. Cancel for Any Reason is an optional benefit add-on that will partially reimburse you if you need to cancel for a reason not listed in your policy. Some travel credit cards may also include financial default cancellation coverage.

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Please be aware that coverage and eligibility requirements for this benefit differ by policy.

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