Travel Supplier Default/Bankruptcy Coverage

This is a tough article to write. The impact of the coronavirus on the travel industry has been devastating. Many travel suppliers are being financially stressed like never before.  When travel restarts many are going to be looking to get cash flow going as quick as possible and to do so after such an event, they need to offer incredible travel bargains to get us to open our purses and wallets once more. The unfortunate truth is that some of these travel suppliers may not be able to weather the oncoming financial storm.  Remember the old adage, if it sounds too good to be true it probably isn’t.

Default Coverage- what is it?

This benefit is known by a few names within the travel insurance industry-  default protection,  insolvency coverage and bankruptcy coverage. But it’s really not a separate benefit - it is a possible peril found in the trip cancellation and trip interruption coverages.  While the names might differ, the coverage offered is the same- coverage if the travel supplier you are using goes into financial insolvency or bankruptcy, causing you to cancel or interrupt your trip, and as such it is a covered reason under trip cancellation/ trip interruption

So, what is bankruptcy or default?  In nearly all policies these terms will be in the travel insurance policy’s definition section, usually defined as the  total cessation of services due to insolvency of an airline, cruise line, tour operator or other travel provider. In most cases, the filing of a bankruptcy petition is not a requirement.

Thankfully, financial insolvency is not a common occurrence, but it does happen. With this article we hope to inform you on how to find those plans that offer the coverage to best protect yourself in the event that it does.

Financial Default Coverage- what does it cover? 

It protects your pre-paid non-refundable travel arrangements that you’ve insured if your trip is cancelled or interrupted due to the un-forseeable bankruptcy or default of a listed travel supplier in the policy. This benefit will either reimburse you for those losses incurred for cancelling or interrupting your trip if no other transportation available, otherwise it reimburses you for the change fee to continue.

What is a travel supplier?

The definition of travel supplier can vary depending on the policy. With some, travel suppliers are defined as airlines, cruise lines, hotels, rental companies and tour operators. Other plans may say that any entity or organization that coordinates or supplies travel services to you is considered a travel supplier. So be sure to read your policy.

What are travel supplier restrictions and how might they affect coverage?

Travel supplier restrictions are a list of travel suppliers that the insurance company will or will not cover for financial default. This isn’t something that many insurance companies use these days, but if you see a list on the policy you’re viewing, make sure to check it.

Financial Default Coverage- what plans have it?

The financial default benefit is only available with the comprehensive package policies. It is important to note that not all plans offer financial default coverage. With those that do, it’s either part of the policy (less common) or an extra time sensitive benefit that you must qualify for (more common).

How do I qualify?

As mentioned above, not all plans offer default coverage.  Some plans offer it a as a standard peril and some plans add restrictions and limitations such as making it time sensitive benefit, here's the general requirements they have:

• buy the insurance within 24 hours to 21 days (varies by policy) of your initial travel deposit

• insure for the full cost of your trip

• check the travel supplier list to see if it applies.

Please note that the above is a general guideline.  You always want to look at the specific requirements on the policy you're viewing.

Financial Default Coverage- why you shouldn’t purchase the travel insurance directly from the travel supplier

In many policies that offer default coverage, you’ll find an exclusion that limits coverage for default if you purchased your insurance policy from the same travel supplier that you purchased your trip from. What does this mean in laymans’ terms? It means that if you purchase the travel insurance from the same place that sold you your trip, you would not be covered for financial default. Why? It’s to prevent a travel supplier with inside information from shifting the risk to the insurance company at the last minute.  

Also be aware of “Protection” plans offered by tour operators and some cruise lines.  Many “protection” plans are not backed by licensed insurance companies but rather they are self-funded by the tour operator or cruise line.  That means that if they go bankrupt or cease operations because of insolvency then the travelers will have no coverage and worse the money paid for the “protection” coverage is not protected and becomes a general, unsecured, liability of the travel company - that means you’re last in line to recover your money.  

Our best recommendation:

• Do your diligence when selecting a tour operator or cruise line.

• Don’t buy travel insurance from the travel supplier.

• Buy travel insurance within a week or two of your first deposit in order to have the most options.  The longer you wait the fewer options you have.

• Buy travel insurance from a third party - us.