What is financial default for travel insurance?

One of the more unusual things travel insurance covers is the “financial default” of an airline, cruise line, common carrier or tour operator.

To understand what that coverage entails, you need to first understand what a travel insurance company considers financial default, and then what constitutes a common carrier.

Financial default defined

Berkshire Hathaway Travel Protection policies, like our ExactCare Extra® plan, define financial default as “the total cessation or partial suspension of operations due to insolvency, with or without the filing of a bankruptcy petition by a tour operator, cruise line, or airline.” In other words, a tour operator or transportation entity going out of business because they can’t afford to stay in business.

Take note: That definition varies by travel insurance provider.

You might think the chances of this happening are pretty slim … and you’d be wrong.

Between February 2020 and September 2021, 25 airlines around the world declared bankruptcy, including Virgin Atlantic, Norwegian Air, Philippines Airlines, Alitalia, and Compass Air. Not all of them ceased operations immediately, but many did, stranding travelers worldwide.

This is particularly serious when you consider that many of these airlines were the only scheduled air transportation serving remote areas, meaning travelers found themselves stranded with little recourse for getting back home.

And those are just airlines. The pandemic was just as hard if not harder on tour operators.

Travel insurance can really help in situations like this, because insurance companies have the experience and the resources to extricate people from difficult situations.

While travel insurance will not pay a full-on airlift to get travelers out of these situations unless there’s a medical emergency, they can arrange and pay for alternate transportation to get them back home.

Also, it’s important to note what’s not covered here: the bankruptcy of a travel agency. If you buy a travel package from a travel agent and they go out of business, you’re generally not covered if you cancel your trip for that reason, even though your travel agent going bankrupt might make you want to cancel.

In addition, your own bankruptcy is not typically covered under the financial default provision.

Common carrier defined

As for what constitutes a common carrier specifically in our plans, that’s “an air, land, sea conveyance operated under a license for the transportation of passengers for hire and for which the Insured’s ticket was purchased through the Travel Supplier.” Similar to other coverage definitions we’ve outlined, this definition varies by travel insurance provider.

While a train or cruise ship is almost universally considered to be a common carrier, it gets hazy with ride-shares and the ad-hoc buses operated in countries like Belize. That’s where the buying tickets clause in the definition of a common carrier comes into play.

If you’re not sure whether a form of transportation you’re planning on taking is a common carrier, ask your travel insurance company. They’ll be able to tell you.

One more thing to remember about financial default coverage: It’s not always automatically a part of your travel insurance plan. Often you need to buy travel insurance within 15 days of your initial trip payment to get the coverage – just one more reason to buy early.

Financial default is unpleasant and can really play havoc with travel, and while it’s uncommon it’s not unheard of. Travel insurance is the best way of protecting your travel investment from this catastrophe.