​Taking a trip? Don't forget the travel insurance

The plight of British travelers left stranded in Egypt after their government halted flights from the Red Sea resort of Sharm el-Sheikh back to the U.K. is a poignant reminder that we travel in a world where uncertainty is always present. With the cost to travel today, that's why it's worth considering how to protect your investment in case your trip is canceled or interrupted.

Strategies to manage this risk include dealing with a reputable travel agency and considering a cancellation waiver. Alternatively, there's travel insurance, an add-on insurance product that provides reimbursement for a stated dollar amount in the event that your trip is canceled or interrupted.

It's important to know that these are very different. Trip cancellation waivers provide limited protection when you need to cancel your trip within a short time period. It comes in the form of a future credit with the same travel supplier. These waivers won't not reimburse you financially. Only travel insurance provides true reimbursement. These policies are sold by a legitimate, typically state-regulated insurance company.

According to the U.S. Travel Insurance Association, in 2014 approximately 33.4 million people were covered under travel insurance plans provided by the association's members. Consumers purchased this coverage through travel agents, travel suppliers and from insurance companies directly and online.

Travel insurance can combine three forms of coverage: trip cancellation or interruption (as in the case of the British travelers in Egypt), loss of and/or damage to personal effects, and emergency medical insurance. Today, consumers can pick and choose which coverage to include. For example, if you have adequate health insurance (covering medical costs while traveling) and home insurance (covering personal effects while traveling), you can buy travel insurance without these features, reducing the costs.

Premiums can range from about 3 percent of the covered costs of your trip for the most basic policy to about 8 percent for a policy with more features. The total cost is based on the length of the trip, the destination, coverage features and the age of travelers.

Travel insurance can provide reimbursement for ticket costs due to trip cancellation or interruption arising from conditions such as illness, severe weather, strike or natural disaster. Also covered are baggage loss and/or delays. This can apply if you have to cancel your trip or it's interrupted.

Also, in the case of an act of terrorism (which these policies typically define as an incident deemed as such by the U.S. government) in or near a city listed on your travel itinerary, a canceled trip should be covered by most reputable policies.

But the reasons for a canceled trip can't be arbitrary. They must meet specific definitions before you qualify for any reimbursement. You'll need to read a policy for specifics, but here's an example: A medical professional must certify that your sickness or injury prevented you from going on or continuing your trip. Also, if you cancel due to the sickness of a traveling companion, that may not be covered.

That's why it pays to consider Cancel for Any Reason, or CFAR, trip insurance. This special coverage must typically be purchased at least 15 days prior to departure and be for an amount of coverage that's equal to 100 percent of the cost of your trip. Of course, CFAR travel insurance costs more, often at a rate of as much as 8 percent to 15 percent. But if you need to cancel your trip for any reason, CFAR can be well worth it.

When considering whether to buy travel insurance, compare policy coverage, benefits and prices, and ask for a list of what is included and what isn't. Start by checking the U.S. Travel Insurance Association website to learn more and find reputable providers.

Also, before you buy, review your health insurance, homeowners and auto policies to see what these cover when you travel. For example, you may find that the loss of personal property is covered under your homeowners or auto policy, the rental car insurance and even your credit card.

But you may be surprised to find that your existing medical insurance may not cover you abroad and may provide no coverage at all for medical evacuation. The bottom line is that putting a little effort into making sure your travel bases are covered could pay off down the line if something unexpected blocks your path.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.