28

In my understanding (and I may be wrong), on average insurance costs you more than amount of claims insurer expects to pay you. So if you can afford the losses, you can expect to pay less when you don't purchase the insurance.

For example, let's say I have $10,000 on my credit card and I can afford to lose all this money. If my luggage gets lost, or I have to pay medical bills up to this amount, it's not a disaster for me. So there is no point for me to purchase insurance which covers up to $10,000.

So am I correct, and if not, then what are the advantages of travel insurance for me? For example, would a hospital treat me better if I had insurance? Or what if I got hit by a car, unconscious. Obviously the doctors won't know how much money I have, but if I carry insurance documents with me, there is a chance they would read them (and possibly treat me better).

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    "on average insurance costs you more than amount of claims insurer expects to pay you" - no, on average insurance costs more than the claims insurer will pay out across the entire underwritten base. On average, most people will never claim. Its that $1million claim that you want to be covered for that you take out insurance for - you dont want to be stuck in Vietnam with a broken back and no way to pay for a medical flight back to your home country, a portable ventilator and 24/7 nursing for the duration of the flight etc etc etc. – Moo Nov 22 '17 at 14:33
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    I think @Moo's point is that "most people will never claim" because they won't have a basis for a claim, not because they're lazy or otherwise refraining from making legitimate claims. Most trips go according to plan without delay or injury. Insurance premiums paid for those trips allow the insurer to make money despite paying claims to a small proportion of their clients. – phoog Nov 22 '17 at 15:28
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    "So if you can afford the losses, you can expect to pay less when you don't purchase the insurance." This is always the case with insurances. – glglgl Nov 22 '17 at 15:35
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    It is worth noting that the UK consumer group Which? recommends £2 million cover for medical expenses when travelling in Europe and £5 million for worldwide travel (both GBP). Whilst there are those who could comfortably absorb theses losses, the modest cost of even the most premium insurance policy will fall orders of magnitude short of these costs should you ever need this level/cost of care. – pwdst Nov 22 '17 at 17:30
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    @MarkHenderson the vast majority of medical bills internationally will be well under $10k. I have been on the road seven years and have been hospitalised for dengue twice, pneumonia, cholera, a suspected heart attack and many other things, and it was never even near $10k never mind over it. What is true is that you want to be covered for those exceptional circumstances where it IS over $10k but "most" medical bills will be well under that, most of the world is not the United States. – Ivan McA Nov 23 '17 at 5:40

12 Answers 12

56

Insurance is most useful for rare but severe losses. Frequent but minor losses should be self-insured (i.e. paid by you), for precisely the reasons you stated.

If my home burns down, I don't care that insurers make money on homeowner's insurance. I can't afford a few hundred thousand dollars to replace my home and contents. No amount of saving behaviour is going to make that viable for me without crossing my fingers and hoping it happens late in my adult life, and even then, it's going to seriously destroy my retirement plans.

Travel medical insurance is precisely such a coverage. I can probably afford if I get a kidney stone and need to go to the hospital for some Demerol (I pass my stones naturally, so far anyway). What I can't afford is if I have some cardiac event, end up hospitalized for a week after serious emergent care, and get a bill for $350,000... or even $35,000 would be pretty disruptive.

Unless you're old, or have certain pre-existing conditions, travel medical insurance is cheap. Here in Canada it costs tens of dollars for a typical trip (despite that the public health insurance plans pay little to nothing out of country).

On the other hand, I don't insure for trip interruption because the sort of travel I take doesn't expose me to large amounts of risk. My flights may not be refundable, but I can rebook with a credit to use within a year, so my loss is mitigated, and most hotel reservations can be cancelled. If I were to book an expensive prepaid trip of a lifetime and it weren't refundable, I'd think again about that, but that's not what I do right now.

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    "despite that the public health insurance plans pay little to nothing out of country" one caveat to this; if you are an EU citizen and have a EHIC then healthcare is partially or completely covered in other EU countries. It's not a substitute for travel insurance which covers a lot more but it does mostly take care of healthcare specifically. – Ben Nov 22 '17 at 19:28
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    @Ben I was speaking about Canadian public health care benefits specifically, but that's still very good to know. – Jim MacKenzie Nov 22 '17 at 20:14
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    @Ben But that's because in some respects EU is a wannabe country. – Hagen von Eitzen Nov 23 '17 at 13:02
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    @JimMacKenzie "Pretty normal to get then more than once, if a person gets one, I believe". Oh boy, I won't pass that on to my mate who was in hospital for 5 days with pain that was "worse than childbirth". All the best. – camden_kid Nov 23 '17 at 14:55
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    Unless you are old or have a pre-existing condition medical insurance is cheap. Obviously this depends where you are (i'm sure it is illegal somewhere). But for me, and my wife, even from us having very minor preconditions it something like tripled our insurance costs. (Still worth it, because even with minor medical conditions, if I had have need an emergancy prescription in another country that would have mean getting an emergency re-diagnosis from a specialist, and even nonemergancy at home that cost >2x as much as my high cover costs) – Lyndon White Nov 23 '17 at 16:19
29

The basic principle of buying any insurance is that it is only prudent to do so if you can't afford to pay out the potential liability out of pocket. That's why getting insurance for something like a mobile phone is generally unwise as most people would be better off self-insuring by buying a new device whenever needed.

So no, don't buy insurance if you can afford the bills and if the country in question doesn't require foreign tourists to get one. But be aware that in a country like the US you can easily end up with a bill of hundreds of thousands of dollars, so you have to be very sure of your own financial reserves before risking such a move.

A more prudent move would be to purchase health insurance with a high deductible (say, $10k in your particular scenario). This would allow you to buy a cheaper insurance plan, but would still cover you in case of a major emergency.

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    Also, liability and repatriation costs can be very high. – David Richerby Nov 22 '17 at 15:32
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    +1 for the high deductible suggestion - this allows the OP to mitigate the high risk event whilst self-insuring those they are willing and able to. – pwdst Nov 22 '17 at 17:15
13

The general rule is that you insure it only if you cannot afford to pay it.

So, if your insurance cannot cover more than you can, such as your $10K example, then there is not much point. This is typical for things like lost luggage insurance or theft insurance which basically will pay for reasonable things with you but not if you have a suitcase full of gems or cash.

Health insurance on the other hand can cover hundreds of thousands if not millions, depending on the particular policy and coverage. Of course, the likelihood that you need that much is low but that is the point of insurance. You are more likely to need a few hundred dollars, than a few thousands than a hundred thousand! But it can happen. A while ago there was news of someone who had to be given anti-venom at $40K/shot plus helicopter transport and she blew out her maximum coverage.

It is important to know what type of coverage you are getting. If you have a generic health insurance for example, the will typically only pay for medical expenses. Say, if you break a leg, it usually covers the cost to transport you to medical care and medical treatment but at that point you may not be able to continue with your trip or even start it, if it happens just before. This means that you must also think about the cost of the trip as a potential loss and whether you want to ensure it or not.

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    RE helicopter transport, I'd definitely get insured for potentially dangerous outdoor activities. – modular Nov 22 '17 at 15:02
10

The word "travel insurance" is a bit wide. You mix up several things yourself, among them losing your luggage, your credit card, and getting hit by a car.

Generally, insurances never really hurt, but often they are a waste of money. Sometimes, however, not having an insurance is just outright stupid. Some insurances, every person must have.

There's travel insurances that cover trip cancellation. I've not needed this once in 4 decades. If you are somehow considerate, the odds for something random to happen (being run over by a car a day before gonig on holiday?) which would make the insurance valuable are very low.

There's lost luggage, but the airline already has an insurance for that. Compensation is not truly great, but it's sufficient and you mention having deep pockets anyway. When in doubt, be sure to put in a couple of water bottles on top to max out on luggage weight up to the allowed limit (compensation for lost luggage is per kilogram). An additional insurance for this is, in my opinion, wasted money. Sometimes that kind of insurance is piggy-backed on your VISA anyway (it is on mine), so chances are you already have it even though you don't need it. Check your contract to be sure, just in case.

There's credit cards being stolen or lost. Hasn't happened to me once in my life. Hasn't happened once to anyone in my family, including my grand parents.
But sure, it can happen, no doubt. I know someone in the gym (strong guy, 15 years younger than myself) who was mugged half a year ago in Spain. Shit happens. Guess what, his household insurance covered the case (don't ask me what it has to do with household!). Again, check your existing contract.
So, you might get robbed or lose your VISA, but you know what? VISA has an insurance already that covers everything above so and so much, after so and so long (depends on your contract, in my case it's something like 500€ maximum, and zero for any losses after reporting it lost, which is just ridiculously little money compared to buying an extra insurance for something that practically never happens).

And then, there's getting ill or being run over by a car abroad, anything of that kind. Oh heck, you absolutely want an insurance for that. Not having an insurance for that case is, really, just mindboggingly stupid. Yes, this is also a rare thing, but when it happens, oh my.
Also, you not just want some insurance, but you want an insurance that covers rescue missions and accompanied back haul, or a travelling doctor who speaks your native language and works with a standard like in your home country.

All of that is (since I have a maxed out private health insurance) already included in my "standard" health insurance, but that is not necessarily so. Be sure to check before going.

If it is not included, you can get full coverage for something around 50€ per year. Which is nothing compared to the benefit. Those 50€ are a very good investment! Note that it's not only a matter of cost (although the forementioned can easily be a 6-digit figure) but also a matter of comfort and being able to sleep well. You don't want to be stuck injured and ill in a country where you have trouble speaking to your doctor, and where maybe the standards are not quite what you're used to. You don't want to be treated second class either. You don't want to have to worry how to get home now.

(Note that I've not needed that kind of insurance ever in my life, but this is the kind of fee that you will happily pay if you don't need it.)

You also want to make sure that your private liability insurance (which you hopefully already have) also covers you abroad. Because, unlikely as it is, you can easily run into a situation where you get out with a 6-digit or 7-digit liability, which will, even if you have relatively deep pockets, be very painful or break your neck. A personal liability insurance (which normally also covers spouse and children) is also in the 50-100€ range per year, so it's very affordable in comparison to an end-of-days type of financial risk.

  • When you say "although the forementioned can easily be a 6-digit figure" - make that "7-digit". A million $/€/£ bill is a big medical bill, but it's not one that will be unusual for the hospital. – Martin Bonner Nov 24 '17 at 7:16
7

First of all, there are several kinds of "travel insurance" around (at least in Germany):

  • travel cancellation insurance: this one comes into play if you can't go on a trip because you're sick or whatever, but made non-refundable bookings, they will cover this for you. Unless you're having a non-refundable round-the-world-ticket this will probably be less than $10k.
  • Lost luggage insurance: Unless you were carrying jewels, you will probably be able to buy new clothes for less than $10k.
  • "Travel interruption insurance": Not sure if this is the correct translation for "Reiseabbruchversicherung", but if you choose to travel home early because you got sick, a family member died, your home was damaged in a storm or something similar, they will pay the extra cost for new tickets back home. This should also be covered in the $10k frame.
  • Medical insurance: As the others have stated, this can easily exceed $10k. Depending on some details, you might indeed get "better" treatment when having this additional insurance (faster treatment, more doctors to choose from, ...)

Long story short: in your case, if possible, get medical insurance only (it's possible in Germany), otherwise get a package with medical insurance included.

  • In North America, we call Reiseabbruchversicherung trip interruption insurance. – Jim MacKenzie Nov 22 '17 at 17:38
5

On top of the already mentioned medical travel insurance, another type that you can probably not cover yourself is personal liability insurance.

If you travel to the USA and you cause an accident, the other party might sue you. Sue you for a lot of money. Sue you to cover their hospital bills ($$$), their estimated loss of income, and then some more to cover more vaguely quantifiable losses (like quality of life loss). This can easily be as much and in fact more than if you are yourself hospitalised, because the other party's medical bills is just one component of personal liability insurance.

This is most likely to be relevant if you are driving a car, in which case such liability insurance is required by law, but in many U.S. states the legal minimum has a maximum in the order of tens of thousands, which is insufficient. So, if you travel to the USA and rent a car, be very careful that your liability insurance covers personal liability in the order of millions. $10,000,000 is probably an OK maximum. $10,000 is not. But it's also possible (although unlikely) to cause a serious accident without driving a car, so you will want an insurance that covers you against such.

5

Whilst many other answers consider the economic case, there are other cases to be considered. For Schengen visas, EU regulation 810/2009 says in Article 15

  1. Applicants for a uniform visa for one or two entries shall prove that they are in possession of adequate and valid travel medical insurance to cover any expenses which might arise in connection with repatriation for medical reasons, urgent medical attention and/or emergency hospital treatment or death, during their stay(s) on the territory of the Member States.

  2. Applicants for a uniform visa for more than two entries (multiple entries) shall prove that they are in possession of adequate and valid travel medical insurance covering the period of their first intended visit.

    In addition, such applicants shall sign the statement, set out in the application form, declaring that they are aware of the need to be in possession of travel medical insurance for subsequent stays.

As I read Art. 15, no exception is made for people who are self-insuring. So there is at least one case where, if it applies to you, travel insurance is a must-have.

5

As well as covering unlikely but large costs such as medical bills, travel insurance policies may also give you access to some sort of hotline for help in the case of an insured event, or at least an insured event that qualifies as needing urgent assistance.

That's a potential benefit in the form of time and knowledge that's hard to put an exact figure on when you're taking out the policy but that you might find invaluable if you need it. For example if you or a family member is injured in an accident while in a foreign country you don't know well, you would probably be very grateful to have access to advice on which hospital to use, to have your travel rearranged for you rather than you having to make those phone calls, and so on.

Luckily I've never had to call on such a service myself so I only have secondhand and anecdotal evidence that they're effective - any source of objective data would be welcome.

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    In case of an emergency one should call 112/911, not the insurance hotline. – JonathanReez Nov 23 '17 at 10:43
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    The travel insurance emergency hotline is not meant to substitute for 112/911 services but to help with arrangements that need to be made as a result of the emergency. In a Western country (as implied by '112/911') I would expect an ambulance to take me to a suitable hospital, but not every country in the world has the same level of emergency service cover, and the 112/911 service would not be responsible for advising me on subsequent nonemergency medical care or for rebooking my flight home. – nekomatic Nov 23 '17 at 11:04
  • I've reworded my answer to remove the word 'emergency'. – nekomatic Nov 23 '17 at 11:07
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    Yeah. My travel insurance for exmaple would arrange trip back home, possibly handle driving my car back home. Collect my luggage etc. - there is a lot 911 does not handle. – TomTom Nov 23 '17 at 11:51
  • This would greatly depend on your insurance/assistance company. Instead of the best hospital for you, they potentially may offer the one they have contract with, even though it's much farther or doesn't have necessary facilities. I've read plenty of bad stories in Russian-speaking travel forum forum.awd.ru. – modular Nov 25 '17 at 5:01
2

Travel insurance is usually a short term insurance. You pay once and then stop. In Canada I would always buy travel insurance when travelling overseas or a long distance from the USA/Canada border. Generally Canada would pay to get me back home if I have an accident in the USA, but if I have to spend any time in a US Hospital, especially if it's in Hawaii or something, I would be better off buying insurance. Even if I can afford a million dollar hospital bill, I would be better off buying short term travel insurance.

Nowadays I don't buy any additional insurance because my workplace group insurance covers personal travel for my whole family. But I'm still insured when I travel.

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    "Travel insurance is usually a short term insurance." I'm not sure that's really true. For people who travel internationally more than a couple of times a year, an annual policy is probably cheaper. (At least, it is in the UK and there's no particular reason to think that's UK-specific.) – David Richerby Nov 22 '17 at 16:07
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    @DavidRicherby It's true in the US too. – stannius Nov 22 '17 at 16:31
  • @user122858 Canada won't pay to get you home - your province or territory might (Canadian health insurance is provincial/territorial in nature). In Saskatchewan, the public health care system will pay $100/day maximum toward your extra-Canadian care, so that will assuredly not pay to bring you home. – Jim MacKenzie Nov 22 '17 at 17:40
  • @JimMacKenzie $100 Canadian will barely cover the cotton ball they use to prep your arm for an IV in the US. – JimmyJames Nov 22 '17 at 18:37
  • @JimmyJames Precisely, which is why it's not wise for Canadians to leave the country without travel medical insurance. – Jim MacKenzie Nov 22 '17 at 18:47
2

on average insurance costs you more than amount of claims insurer expects to pay you.

This is incorrect. On average insurance expects to collect more across the entire underwritten base than it expects to pay out to that entire base. But many times if an individual makes a claim they'll receive far more than they ever paid into it. The people who never make a claim cover that additional payout.

Insurance is more of a risk management service. You take a 100% chance to pay a small amount over a low chance of paying a larger amount. You pay a smaller amount to limit your risk of paying a larger amount. That is the benefit it provides.

That benefit still applies no matter how much money you have: You might prefer to pay a guaranteed $10 than to have the risk of paying the full $10,000 even if you could sustain it.

Medical is a perfect example where the costs can easily skyrocket well above $10,000 and insurance is a nice protection against that potentially massive drain on wealth. Insurance against a delayed flight, on the other hand, is going to be limited in scope and potential value. You might well prefer to on that risk and pay the difference if the odds are against you.

  • "But many times if an individual makes a claim they'll receive far more than they ever paid into it. The people who never make a claim cover that additional payout." - I think this is adequately covered by the OP's on average. – nekomatic Nov 23 '17 at 9:55
  • No, the OP makes it sound like it is on him. He seems not to understand the significant difference between premium and possible payout, at least emotionally. – TomTom Nov 23 '17 at 11:52
  • @nekomatic That's exactly the distinction I was trying to highlight: OP was speaking in the singular, but his statement applied to the average. But just because it applies to the average doesn't mean that the individual situation isn't the opposite. – IronSean Nov 23 '17 at 13:27
  • @IronSean feel free to edit my question, as I'm bad with insurance terminology. I meant that most likely the payout will be zero (because nothing will happen), so expected value of payout is less than insurance cost. But if payout is non-zero, it most likely will be higher than insurance cost. – modular Nov 25 '17 at 5:10
1

Most answers claim it's wise not to have insurance if you can afford the losses. I completely disagree with that. In my case, I can afford several thousands if something goes completely wrong, but by paying a bit over hundred euro per year I make sure it never comes to that, which saves me a lot of stress. If those relatively big losses are something you can afford, what you pay for insurance is negligible compared to that, and if that makes for more enjoyable and stress-free journeys, I don't see how you justify not taking one.

0

The best thing to do for all insurance is to get the highest limit to reduce the risk of catastrophic events as much as possible, with the highest deductible that you can handle / can get.

This is cheaper for two reasons: One, because in 99.9% of the cases the insurance will never hear of you, so they have no work with you except taking your money. With travel insurance, they probably don't ever hear of 95% of their customers, but the 5% cost a lot of money just to handle the cases.

Two, if you have say £10,000 deductible, then you will probably try to keep the cost low (below £10,000) because up to that amount it's your own money. If you have one treatment option that costs £8,000 and another option that costs £12,000 then you will tend to take the £8,000 option so both you and the insurance save £2,000.

(I once was offered health insurance where a £600 deductible per year lowered the premium by £600 a year. So you couldn't possibly lose out, worst case you paid the £600 you saved. For the insurance company, they made money because they didn't have to handle claims from many people at all, and because people tried to keep payments cheap until they reached £600).

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    I don't think it's prudent to automatically take the highest deductible you can get or that you can handle. You should consider the reduction in cost that's received. I once had a client change from $500 to $5,000 deductible on a very small tenant policy. She saved $20/year. She would have to go 225 years between claims to make that decision cost-effective. (The average property insurance customer goes about 10 years.) – Jim MacKenzie Nov 25 '17 at 20:44

protected by JonathanReez Nov 27 '17 at 18:16

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