Why Cheap Travel Insurance Isn't Always The Most Budget-Friendly

Let's say (purely hypothetically), you're in Guatemala taking a late-afternoon stroll, eating ice cream, and looking at the surrounding 17th-century architecture. While rubber-necking the doors of a church a little too long, you abruptly run out of sidewalk, which is about two feet above Antigua's cobblestone street. You know how high above the street the sidewalk is because you counted the inches as you fell shoulder-first on the cobblestones below.

Covered in ice cream, while a fleeting Shel Silverstein joke flicks in your head, a torrent of pain shoots through your body. You're hurt and in a foreign country. Fortunately, you have travel insurance. No problemas, right? After using your practiced Spanish to ask where a clinic may be, you confidently, though painfully, walk to find some assistance.

Unfortunately, the regular hospital doesn't take your budget travel insurance, so you'll need to go to a private clinic, pay cash, and hope to be reimbursed by your travel insurance company later. Fortunately, the clinic can see you on Monday. Unfortunately, it's Saturday. You spend the weekend mitigating pain with mescal tastings and receive help taking off your t-shirts. You need help because of your budget-friendly travel insurance, two dislocated shoulders, and a broken shoulder blade.

According to Travel Agent Central, a recent survey revealed the top three concerns travelers buy travel insurance: flight troubles, worldwide trouble (like a pandemic), and needing medical attention while traveling. With budget insurance, you may be surprised the extent your coverage actually addresses these concerns.

Budget insurance is vanilla ice cream without toppings

Budget travel insurance is not inherently bad. You just need to understand what the policy includes and doesn't include. It's like a bowl of vanilla ice cream without any toppings. According to Nerd Wallet, basic travel insurance does typically cover bag delays and losses; trip changes, delays, and cancelations; missed and canceled flights; and medical assistance and evacuation.

However, basic travel insurance is filled with plenty of caveats that void coverage. For example, basic insurance will probably reimburse non-refundable, prepaid costs if you cancel a trip due to inclement weather — with a caveat. If that inclement weather is "named," you won't be covered. You'd need to purchase a "cancel for any reason" upgrade to your policy to incorporate the named storm.

The scenario above is only one example. Here's another. In the past, pandemic-related coverage wasn't necessarily a consideration for most travelers. However, after the mayhem of COVID-19, many travelers found out the hard way that most travel insurance policies do not cover pandemics. While this is certainly changing, you'll still need to upgrade a cheap policy to receive pandemic-related coverage.

Medical coverage is slippery business

Medical coverage, as described by many cheap travel insurance policies, is a whole other ball of wax. We'll focus on two of the biggest ones: pre-existing conditions and risky activities.

According to Forbes, travel insurance can define pre-existing conditions through a "look-back lens" between 60 and 180 days prior to buying your policy. So, if you received treatment for something in the U.S. and need to be treated again while traveling, then your policy must make allowances for that pre-existing condition. If not, then medical assistance will not be covered.

Also, insurance policies have different definitions of "risky activities," so you'll really need to read the fine print of a budget policy. If you're planning on skiing, scuba diving, white-water rafting, or doing something similar, you may need to get a sports and adventure add-on to receive medical coverage. So far, we've added four toppings to our bowl of ice cream. 

Fortunately, running out of sidewalk with ice cream isn't typically deemed extreme. However, you may also want to check your travel insurance policies regarding their relation to your normal medical insurance. Sometimes, by having both, neither policy will cover you. It's all in the fine print.