Travel Insurance Explained: Financial Default cover

If an airline goes bankrupt before or during your holiday, it could be curtains for your holiday plans. Given that airlines are going bust on what now seems like a weekly basis, it is prudent to make sure that you have some protection in the form of financial default insurance.

A travel insurance policy which includes financial default cover will only pay out if an airline has completely ceased all operations due to bankruptcy proceedings. There may be a number of conditions attached to this type of cover, so it is important to make sure that you know what you are getting into.

It is worth investigating the small print of your travel insurance policy before you buy, as some of the more stripped down packages do not offer financial default cover as standard. Also, steer clear of buying insurance directly from the airline you are travelling with, as they cannot pay out on a claim if they are bankrupt themselves.

Insurance cover of this type only applies to travel suppliers such as airlines, cruise lines, and tour operators. So if your travel agency goes under, you will not be protected unless they are signed up to a customer guarantee scheme of some sort.

If your trip consists of a number of journeys with different travel suppliers, then you will only be covered by financial default insurance if you miss your whole trip as a result of one company going under. So if you had booked a flight to Barbados to board a cruise ship, and the cruise company goes out of business, you would not be refunded for your flight.

There may be a waiting period specified in the insurance contract, for example the travel supplier may have to go bust more than a week after you bought the insurance policy for it to be valid. This is to prevent a rush of late applications for insurance in the wake of the news that a travel supplier is about to go under.

Also, you should check whether the underwriter of the policy has a list of approved travel suppliers. If they do, and your travel supplier is not on the list, then you will not be covered if they go bust. Do not assume that most reputable suppliers will be on the list, as these lists can be surprisingly short.

The best policy is to buy your insurance from an independent supplier as soon as you can after booking your holiday, and make sure you check the small print before you sign.