What is Travel Insurance for?
Travel Insurance is a policy designed to cover certain losses in the event of a claim whilst traveling either nationally or internationally. Most consumers will be able to provide a basic answer to this question, but actually travel insurance is one of the more complex policies, with many different areas of cover.
The Insurance Contract
1. An insurance contract is normally a standard agreement between two parties, the “Insurer” and the “Insured” (also known as the policyholder), that sets out, under what circumstances the insurer is legally required to pay out (known as the claim).
This is in exchange for a payment, widely known as the “premium”
In layman’s terms , it’s an arrangement by which a company, undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.
The Insurance Policy
An insurance policy is made up of a proposal form, to which the policyholder provides the insurer with relevant information, a schedule of insurance, which normally lists the beneficiary details, sums insured, levels of cover, excess and any additional endorsements or terms and conditions.
Finally the policy booklet that details the sections of cover, the perils that are covered and any exclusions.
Why must your Insurance schedule be read in conjunction with the policy booklet?
A very important point to note is that Insurance contracts are generally considered “contracts of adhesion”.
This means that the insurer draws up the contract and the policyholder has no input, or the ability to make any changes.
In a mass market policy like travel, the policy booklet will be standard, featuring boilerplate language that cannot be changed.
The Policy Booklet
It’s therefore vital that you read the policy booklet carefully, as there can be no changes made to whatever is specified in it. The only amendments that may be made, are by way of endorsements to the schedule of insurance.
Before purchase always make sure you have seen a copy of the policy booklet and check that it meets your needs.
The benefit to the policyholder with “a contract of adhesion” is that the Insurer would bear the burden of any ambiguity in the policy wording.
The Financial Ombudsman
The Financial Ombudsman states:
“We look at whether an insurer’s interpretation of key words in the policy conditions was reasonable”
“Some policies provide a glossary of key words. Where an insurer defines a term differently from its everyday meaning. We will consider whether this was made clear and brought to the consumer’s attention.”
“We sometimes see definitions that are ambiguous and unclear – meaning they could have a wider scope than the insurer intended. Here, we may decide that an exclusion or limitation has been applied in an unfair way.”
All insurance contracts are subject to the principle of utmost good faith (uberrima fides). This requires both parties to be honest, deal in good faith and most importantly disclose all material facts.
How does this relate to a Travel Policy?
In respect of a travel policy, material facts would be things like existing medical conditions or previous injuries, that could have a material effect on a potential claim.
Unlike some peoples interpretation, insurance, is subject to the “principle of fortuity”. This means that the insured event must be uncertain, providing protection against a possible eventuality. Not the short terms savings plan that some people think it is!!
One point to mention on this subject – That prior to the internet and being able to buy insurance online, you were required to complete an application form by hand, which was signed and then formed part of the contract.
The Statement of Fact a new era!
The written proposal form has now been replaced with an online “statement of fact”. The consumer provides basic information and by clicking the purchase button, declares that;
a. The information is correct
b. There are no other material facts (as discussed above) that would affect the policy, or cause it to be cancelled.
The basics of a travel policy
In the case of travel, the cover provided, is for a specified period of time that you leave the border of your own country and venture into another country, for a specific reason. (Please note travel insurance is equally valid for holidays and travel in the United Kingdom). That reason could be business, pleasure, (e.g. holiday) long term, or short term.
Holiday insurance is intended to cover medical expenses, financial default of travel companies, and any other losses incurred while traveling, either within one’s own country, or internationally.
The intent of an insurance policy is to indemnify the insured. In other words to make sure you are in the same financial position you were before the claim.
In most cases the guarantee of compensation is either settlement of bills or costs incurred, replacement of a lost or damaged item, or in the event of death, permanent injury or disablement to provide an amount of compensation as specified in the policy.
We will look at the specifics of a travel policy in more detail in later sections. In general terms however, the cheapest travel insurance contains the least amount of cover, so it is important that you understand exactly what is available, before you make any decisions.