Please note, the information below is general information only and is not specific advice or commentary on any product sold by Fast Cover travel insurance.
Travel insurance is a type of insurance that provides cover for the cost of unexpected emergencies and connects travellers with an emergency assistance team that can provide advice and help arrange medical treatment and repatriation home. Your travel insurance provider can be your greatest resource when you need help while travelling.
There are two main types of travel insurance policies:
1) International travel insurance:
Purchased when you are travelling outside of your country of residence.
2) Domestic travel insurance:
When you are travelling within your country of residence.
The standard terms of your travel insurance are outlined in the Product Disclosure Statement, known as a PDS.
This is a document or group of documents that includes important definitions, benefits and exclusions of your travel insurance policy. You will generally have to read your PDS in conjunction with your Certificate of Insurance (and any other document your insurer tells you forms part of your policy), which sets out the details of the policy that apply to you (including who is covered, the travel destination and travel dates).
What is travel insurance?
Travel insurance is a type of insurance that typically consists of two components:
1) Financial Assistance
Cover for a range of emergency expenses related to travelling either domestically or overseas including:
- Becoming sick in a third world country and requiring medical evacuation to a hospital
- Becoming injured such as in a car accident and being hospitalised
- Injuring yourself while snowboarding, skiing or doing another activity
- Having to cancel your flight because you or a relative become sick or injured
- Your luggage being lost or misdirected by an airline
- Needing to arrange alternative transport home due to a natural disaster at your holiday destination
- Your passport being stolen
2) Emergency Assistance
Examples of the emergency assistance that can be provided as part of your travel insurance cover includes:
- Arranging your emergency transport home in a medical emergency
- Finding a translator for you during an emergency
- Communicating with your family or employer during an emergency
- Advising you what to do if your passports or travel documents are stolen
What is a PDS?
‘PDS’ stands for ‘Product Disclosure Statement’. A travel insurance provider's PDS contains information about the travel insurance policies offered and any terms and conditions, including:
Words with special meanings
Insurers will often define what is meant by key terms such as ‘pre-existing medical conditions’, ‘dependant’ and ‘relative’.
What emergency incidents are covered in the policy and the dollar amount for which they are covered up to.
Instances where your travel insurance policy will not provide you with cover. This can include high-risk activities, pre-existing medical conditions and certain situations such as travelling to regions that are listed as 'Reconsider your need to travel' or 'Do not travel' by the Australian Government Department of Foreign Affairs and Trade.
Cover can vary significantly between different insurers, and even between different products and plans offered by the same insurer. It is important to read the PDS carefully so that you understand what a travel insurance policy can cover you for and the instances where your travel insurance would not provide you with cover.
How does travel insurance work?
Insurance has been around for centuries. Evidence from the 3rd century BC indicates that Chinese and Babylonian traders reduced the risk of losing all of their goods by distributing them between multiple ships. Later, shippers in Great Britain started to pool their money together so that should a ship become damaged or lost, the money collected could repair or replace it. Each person contributed a small amount of money so that they wouldn’t face a huge expense if their belongings become lost, damaged or destroyed.
Today, travel insurance uses the same principle to support people who need financial assistance while travelling.
In a very broad sense, insurers pool money together from the large number of people who purchase a travel insurance policy. The money pooled together can then be used to pay for the emergency expenses of a few people that purchased a policy.
Because many people each contribute a relatively small amount of money (their insurance premium) to a pool that will generally be claimed on by a small number of the contributors, it is possible for a person’s small contribution to result in them having cover for a potentially large claim of tens or even hundreds of thousands of dollars.
Jimmy, a 20-year-old Australian uni student, buys a travel insurance policy for a two-month ski trip in the United States. He pays $400 AUD.
Jimmy is one of 17,000 Australians to buy a policy with the same travel insurance company. Not everyone would have paid the same amount as Jimmy because they are going to different places, for different durations and they might be older or younger. Even so, with 17,000 people contributing their money into the travel insurance pool, there may be millions of dollars pooled together at the time Jimmy purchases his policy.
While snowboarding down a slope in Colorado, he falls and breaks two ribs and suffers internal bleeding. He is hospitalised in the United States for two weeks and his father flies over to be with him.
The total costs of helicopter evacuation, two weeks in hospital, x-rays, surgery and flying Jimmy’s father over to be with him totals $100,000 AUD.
Because he had travel insurance which provides cover for snowboarding and he was acting within the terms of his policy, Jimmy’s helicopter evacuation, medical expenses and father's airfares are covered. The travel insurance premiums collected from every traveller who purchased a policy is used by the travel insurer to cover Jimmy’s expenses.
Of course Jimmy isn’t the only one to need help overseas. One hundred other people might have similar expenses for different emergencies overseas. All save themselves from financial hardship because they have travel insurance.
In Jimmy’s case, he saved $99,600 AUD because he bought travel insurance.
People who don’t have to make a claim may not have had to use their travel insurance policy, but they are assured while travelling that they would not have to pay a huge cost if something did go wrong that their policy provides cover for.
How is the price of travel insurance policies calculated?
Travel insurance policy prices vary between trips, travellers and travel insurance companies. This is due to a number of factors including:
Different travel insurance policies will offer different benefits. Some policies provide comprehensive cover that includes cover for emergency medical and hospital expenses, unexpected cancellations, lost or stolen luggage, travel delays and perhaps rental vehicle insurance excess. Other policies will not include as many benefits or as high level of cover for these benefits.
For example, medical cover may be limited to a certain amount (such as $40,000) rather than unlimited. You can also find policies which do not include cover for luggage, travel delays, missed connections or rental vehicle insurance excess. This can result in a cheaper policy.
Some destinations pose higher risks to travellers, or generally are more expensive for travellers seeking medical treatment. For example, staying overnight in hospital in the United States can be significantly more expensive than staying in a hospital in Thailand. For this reason, travel insurance policies for individuals travelling to the United States will generally be more expensive than travellers going for the same period of time to Southeast Asia.
Length of holiday
If you are travelling for a longer period of time, you increase your risk of experiencing an unexpected emergency. The policy premiums for people going on longer trips will generally be higher for travellers going to the same destinations for a shorter period of time.
Activities you are participating in
Different activities involve different levels of risk. Some travel insurance policies will automatically cover some holiday activities such as bungee jumping, riding a motorcycle or moped and snorkelling. However there are activities which may not be automatically covered due to their higher risk, such as skiing or snowboarding, quad biking and scuba diving to 30 metres. If you are planning on doing higher risk activities, you may need to pay an extra premium.
Older travellers are generally found to be more likely to make a claim from an incident while travelling. The cost of these claims can also be more expensive due to their severity. For example, Fast Cover found that half of their top ten highest claims pay-outs were from travellers over 70 years old. The highest claim, for over $190,000, was made by an elderly woman who injured her back after falling out of bed while on a cruise.~
Pre-existing medical conditions
If you have a pre-existing medical condition (this can include a medical condition you’ve been diagnosed with, being treated for, had surgery for, or simply be a condition which is symptomatic or which you are experiencing complications of) a travel insurer may either automatically provide cover for the condition, not provide cover for the condition, or provide cover for the condition if you pay an additional premium.
Why does travel insurance exclude some pre-existing medical conditions or activities?
The pre-existing medical conditions and activities that travel insurers cover depend on the risk associated with these conditions or activities.
For example, a travel insurer may not provide cover for twin pregnancies in the third trimester, due to the high risks of complications and pre-term labour. Similarly, base jumping is generally considered a high-risk activity that can lead to numerous, high-cost claims so this activity may be excluded by insurers.
Is travel insurance a waste of money?
Travel insurance can provide cover for the unexpected costs you may have on your trip overseas or in your country of residence. This means large expenses, such as paying for an overseas medical evacuation by helicopter or overseas hospital expenses, may not come out of your pocket.
For a relatively small expense, you can insure yourself from the potentially larger costs of an emergency overseas. Compare policies to find the benefits and premiums that best suits you.
As the Australian Government's website Smart Traveller says: "If you can't afford travel insurance, you can't afford to travel."
~Claims examples are from Fast Cover travel insurance customers from 1 July 2013 to 30 June 2016.