Will your holiday cover leave you stranded?

While travel insurance is one of the cheapest insurance products on the market, cheapest isn't necessarily best when it comes to cover – as many holidaymakers have recently discovered to their cost.

This spring's travel chaos - due to the eruption of the Icelandic volcano - exposed huge holes in some policies, as many people discovered they were unable to claim for such things as alternative travel arrangements and additional accommodation.

The whole episode highlighted the fact that many of the cheaper policies in particular simply don't cover, or only partially cover, certain events.

"You get what you pay for," warns Lee Griffin, spokesperson for gocompare.com, the price comparison service.

"There are a lot of very cheap policies around, but it's not wise to buy on price alone as levels of cover, in terms of limits and excesses, are often compromised to achieve the low price."

Michael Powell, insurance specialist at financial analyst Defaqto, adds that buying the cheapest policy may end up the most expensive option if customers find that cover is not provided.

Cheap not always cheerful

Cheap cover or not, the sad truth is that the volcanic ash cloud is not the first time customers have run into difficulties with their insurance policies.

Similar problems were encountered last year following the collapse of airlines Zoom and the XL Leisure Group, as well as during the recent British Airways strikes.

And while you may think you're covered against all sorts of eventualities, there are some things you can't claim for.

For example, most insurers don't cover financial failure of a travel agent, tour operator or airline. Similar rules also apply to natural disasters and terrorist attacks.

"One of the reasons certain premiums are so low is that most policies are written for 'specified risks' and are not designed to cover all risks," says Antony Martin managing director of insurefor.com.

"This has left people open to the types of problems we saw posed by the ash cloud."

But while many insurers have failed to meet their customers' expectations during recent events, some have gone above and beyond the call of duty to help their policyholders.

This highlights just how important it is to pick the right policy as well as the right insurer.

"While the ash cloud situation was unprecedented – throwing insurers into disarray – some providers, such as Direct Travel, M&S Money, HSBC and Fortis decided pretty quickly that they were going to consider claims for the extra costs of being abroad," says Griffin.

He also adds that while many insurers maintain a general exclusion for acts of terrorism, Travel Insurance Direct and InsureandGo are two providers that have removed this exclusion from their policies.

"Elsewhere, the Post Office and Direct Line both offer scheduled airline failure insurance as standard in their policies, and Swiftcover allows customers to add it as an optional extra," he says.

Making sure you receive a payout

Apart from opting for an insurer with a good reputation, how can you make sure your policy will pay out in the event of a claim?

"As a minimum, you should look to take out £2 million for medical expenses, £1 million for personal liability, £3,000 cancellation, £1,500 for baggage and £250 for cash," Atkinson says.

Given that more and more travellers are now taking part in adventurous activities overseas, such as paragliding or white-water rafting, it's important to ensure you have adequate cover in place.

Findings from insurer Esure, however, show a quarter of Brits would not check their insurance documents before taking part in a hazardous sport, while one in 10 would take part knowing they wouldn't be covered if they were injured.

"Not all policies cover adventurous sports as standard - and exclusions do apply," says Mike Pickard, head of risk and underwriting at Esure.

Some insurers may charge an additional premium to cover certain sports, and some stipulate that you are only covered if the activity is professionally organised and supervised. Similar rules apply if you are looking for winter sports cover.

"You may need to buy a separate policy as many policies won't provide the required cover as standard," says Griffin.

Having established the features you need your policy to cover, your attention needs to turn to the application procedure. "It's crucial you understand the questions being asked," says Powell.

"If you're unsure about the cover provided or what information is needed, speak to the insurer directly and ask it to explain."

The key is to be open and honest, because if you give partial or incomplete details this may invalidate a claim at a later date.

However, one of the biggest problems for travellers with pre-existing medical conditions is that if they disclose details of their illness or disability they can find that either the cost of cover shoots up or their application is turned down. 

A recent survey by the Genetic Interest Group, a patient organisation, found that 41% of its members find it "difficult" or "very difficult" to get travel insurance, while consumer body Which? also reports that members with medical conditions repeatedly get "wildly differing" quotes.

"Many companies don't understand the ailments or take the worst-case scenario when calculating premiums," says Rochelle Turner, head of research for Which? Holiday.

Travellers who have a pre-existing medical condition may be tempted to omit certain details when applying for cover, but this is a false economy.

"You must be scrupulously honest, as failure to disclose a pre-existing medical condition could jeopardise your claim," warns Griffin.

The good news is you can get quality insurance at a competitive price by contacting a specialist that insures for pre-existing medical conditions. It will take a detailed medical history in order to evaluate risk accurately.

Heath Lambert, for example, is a specialist insurer that acts on behalf of a number of charities, such as the MS Society, Diabetes UK and The Stroke Association. "All policies are rated on a case-by-case basis," says Diane Calpehorn, Heath Lambert's associate director.

Other specialist insurers include All Clear, Free Spirit and Insurancewith, while Insurepink is dedicated to offering insurance to women who have had breast cancer.

Insurers that focus on providing cover for older people, such as Saga and Intune, are also likely to provide reasonably priced cover to those with medical conditions.

Aside from failure to disclose pre-existing medical conditions, the other main reason for rejected claims is customers failing to read the small print. If you do need to make a claim, it's essential to scour the policy wording to find out what information is needed and which procedures to follow.

Make your policy go further

Unfortunately, however, no matter how meticulous you've been when filling out your application form and how well you've examined the small print, the reality is there's no foolproof way to ensure your policy will pay out.

But there are ways to further your protection. If you pay for your booking using a credit or visa debit card, you'll be protected under Section 75 of the Consumer Credit Act – provided the purchase is between £100 and £30,000.

Also, it's advisable to book your travel through a company registered with the Air Travel Organisers' Licensing scheme, and to check that your travel agent is a member of the Association of British Travel Agents, as this will give you added protection.

If you're travelling within the European Union, make sure you carry a European Health Insurance Card. This entitles you to state-provided healthcare in the country you're visiting.

Be aware, however, this is not a substitute for travel cover, as benefits such as repatriation, private healthcare and mountain rescue are not provided.

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