Experts say travel insurance is crucial: Here's how it actually works

Whether you're a frequent traveler or setting plans for an upcoming vacation, unexpected circumstances such as bad weather can cast a cloud over a trip, which is why experts suggest investing in travel insurance.

Recently, Hurricane Beryl marked an "early and violent start" to the typical storm season. NOAA Administrator Rick Spinrad confirmed in a mid-season update earlier this month that Beryl was "the earliest category-5 Atlantic hurricane on record" -- and peak storm season is right around the corner.

With increased risk of disruptions during hurricane season through November and more people opting for shoulder season getaways after avoiding summer crowds, travelers should prepare for such worse-case scenarios to avoid losing money on hotels, activities and other bookings.

Everything you need to know about travel insurance

With an array of options in the market and various individual reasons to invest in a plan that protects your purchases, "Good Morning America" tapped top industry experts to provide insights to help ensure that even if your next getaway gets rained out, your bank account won't be drained as well.

"Things can go wrong in ways that you can't begin to imagine. And if you're unlucky and unfortunate enough to be in that position, you don't want to come back from your trip with a debt to pay off as well," Daniel Green, trip insurance expert and co-founder of Faye Travel Insurance, told "GMA."

Understand the basics before you buy bespoke coverage

Katy Nastro, spokesperson for Going.com, formerly known as Scott's Cheap Flights, told "GMA" that first and foremost, folks need to "understand all the ways in which you are already protected before dishing out for things you don't need."

"When it comes to flight insurance, under federal law, you are already protected to get a full refund or rebooked on a significantly delayed flight or cancellation, regardless of the reason," she said. "With new regulations that airlines must comply with by the end of October, seeing your refund back to your payment method will get a lot faster and more seamless."

Nastro said "many travel credit cards already have built-in trip insurance that can protect you when the unexpected happens," citing perks from the Chase Sapphire Reserve card that provide "reimbursements up to $10,000 per person for pre-paid, non-refundable travel expenses when an interruption happens."

"These cards often pay sooner than the airlines do for expenses due to misplaced bags," she added.

Nastro also suggested to check on coverage across state lines with any existing medical or car insurance policies, which could help cut down on costs.

"Specifically, when it comes to medical insurance, medical care around the world is generally a fraction of the cost compared to what it is in the U.S. So, while it could be good to have if you need stitches in Vietnam, it probably won't break the bank," she said.

Because travel insurance is subjective, Nastro said "it's worth considering when you exhaust your existing coverages to see where you might have some gaps."

How does travel insurance work and what's actually covered?

"A great example is when you have a trip with multiple components that aren't purchased together, like a flight and cruise," Nastro told "GMA." "The cruise won't wait when your flight has been rebooked for the next day, so in this scenario, it might be worth looking at insurance on the cruise portion. You can typically add insurance after the fact, but reading the fine print is critical."

"Trip or travel insurance tends to be cheaper to buy, but is restricted to what is actually covered and often has red tape in terms of getting that reimbursement. For example, if you have an illness and need to cancel your trip, policies might require a doctor's note," she continued.

She added, "Travel insurance with 'cancel for any reason' policies tends to be more expensive to purchase, but more inclusive in terms of what is considered a 'covered' reason. The biggest caveat is that they offer a partial refund -- 50% to 75% of nonrefundable expenses."

When it comes to weather, she reiterated that reading the fine print is critical, because "the coverage typically offered is for extreme weather and scenarios where the operator cannot operate for 24 hours or more, so a typical summer thunderstorm won't make the cut."

Green added that, generally, if a customer buys travel insurance from an airline provider, since the carrier "doesn't know all the details of your trip" beyond the price and date of the flight, "if you're renting a car and traveling around -- or staying in a $4,000 hotel, you might only have $1,000 worth of insurance because at the checkout screen of American or United or Delta, they just didn't know about those costs."

"That's why I think it makes a lot more sense to buy insurance directly from either a website portal or an agent that can show you the main limits, so you know all the things you spent are covered as part of the policy," he said.

As Nastro pointed out, payment for claims can become a sticky situation, which is why Green helped craft an more seamless way to alleviate issues by providing the reassurance of immediate reimbursement: "If you have Apple Pay or Google Pay, you can access that money instantly after the claim is settled," he told "GMA."

Green co-founded Faye just before the COVID-19 pandemic sent the travel industry into a tailspin, but said now, "the concern on the American mind more than anything is who's gonna pay for this? Especially in these days of inflation, if you're paying significant amounts of money for travel, and something goes wrong, you'd like to at least be made whole."

3 categories to consider for travel insurance coverage

Green explained that travel insurance can generally be broken into three categories: your investment in the trip, your belongings such as luggage and passports, and your health.

For anyone booking travel on their own, without a travel agent or adviser, Green highlighted the difference between buying travel insurance directly versus clicking "yes" on an app or checkout screen.

"You're not always being offered insurance that's in your best interest if you're just hoping that whatever your credit card comes with, or whatever your airline gives you at the end of the checkout is going to provide everything you need," he said.

He noted that one important tip for any type of travel coverage purchase is "the earlier you tell your insurance company that something has gone wrong, the more likely it is that they can help you while you're on your trip -- and helping sometimes means paying for expenses so that you don't have to be out of pocket and get reimbursement."

Weather-specific products for travel inconveniences

Products like Sensible Weather offer more specific elements to cover scenarios such as rain during a beach vacation or lack of snow for a ski trip, which may derail plans.

"The idea of travel inconvenience payments, it just takes the sting out of things," Green said. "In those scenarios, you just get a fixed, agreed amount of money -- sort of no questions asked -- You just have to prove that you actually experienced the loss in question, and then you get the full amount."

"You should always buy insurance for one simple reason -- because usually at the point when you start thinking to yourself, 'Wow, I hope we have insurance,' it's one minute too late," Green said. "Hurricane season is the perfect example of that. Once a hurricane is named, you generally can't make any claims related to the hurricane if you didn't already buy a policy."

"What we're learning about the current hurricane season is the weather is becoming unpredictable all the time," Green said. "We've heard about days where the weather was so hot in Phoenix that airplanes couldn't take off from the tarmac, hurricanes coming sooner than expected, or power failures causing an airport to not be able to operate -- and because those things are so unpredictable, playing the game of wait and see before buying your insurance rarely make sense versus just buying it around the time you buy your trip and not having to worry about that aspect again."

How much plans cost and limitations

"There is no one size fits all when it comes to travel insurance," Green noted.

However, he said "there are rules of thumb" that industry experts often follow: "You should be willing to spend up to 10% of the cost of your trip on your insurance."

"The two biggest factors that usually affect the cost of your insurance is your age at the time of purchase, not at the time of travel, and the value of your trip," he said, adding that "every company is different."