Nothing is guaranteed in life except death and taxes. This includes personal travel plans. What do you do when you have to keep down travel costs but need flexibility?
Previously we recommended travel insurance for cruise and resort trips. The typical cost for a $5,000 trip (cruise + airfare) for 2 for a week is $250 for travel insurance + $125 for CFAR (Cancel For Any Reason) or 5% + 2.5% of total cost.
Today we focus on air travel and those nasty non-refundable basic economy fares. We wonder if CFAR (Cancel For Any Reason) insurance is a smart way to hedge against the possibility of losing your entire, albeit cheap, airfare.
Travel insurance typically covers sudden, unforeseen events that disrupt your trip, including trip cancellations due to sudden sickness, severe weather, or a family emergency. But life is more complicated than that. Maybe you have a big project for work, your mom suddenly announced she will be visiting from Boca, or you realize that Saturn is going to be squaring the moon.
CFAR is an add-on that lets you cancel your trip for any unlisted or personal reason. It typically reimburses 50% to 75% of your prepaid, non-refundable expenses, provided you buy the insurance within 14 to 21 days of your initial trip payment and cancel at least 48 hours before departure.
Note that your expense has to be a total loss. CFAR will not pay when the airline issues you a credit.
Let’s make some assumptions so we can estimate costs. Suppose that the basic airfare is $1,000. The probability that you cancel (or change) is 10%. Our CFAR insurance covers 75% of the cost.
Here are your options and average net loss over 10 flights.
$100 - Do nothing. One time you’ll lose the entire purchase. But nine times out of ten your gamble works and there are no other costs.
$250 - Buy the airline upgrade, Scenario 1. This is the cash refund premium for a typical Main cabin ticket. It depends on the ticket price and whether it’s domestic or international.
$100 - Buy the airline upgrade, Scenario 2. You fly the airline regularly and will take the airline credit, which typically is $100 less. We include a $50 credit that you’d pay to choose your seat.
$125 - Hedge with CFAR. Typical travel insurance with CFAR is $100, which you’d pay for every flight. You’d lose $250 on the canceled flight.
Recommendation
In our example, these options are roughly the same in net cost to you. This is a case of airlines and insurance companies gauging risk analytically and pricing their products competitively. You won’t go wrong with any of them.
If you normally buy Main Cabin, regularly fly the airline and will accept a credit, or will pay a little extra for an easy and safe choice, then buy the Main Cabin upgrade.
Buy the Basic Economy ticket if you’re ok with the risk of cancellation, upfront cost is everything, the trip is soon, or the travel is a virtual certainty.
For all other cases, the Basic Economy ticket with CFAR travel insurance is an excellent option. It provides peace of mind, includes travel insurance for flight, medical, and baggage emergencies, and ultimately doesn’t cost you more. But it’s a hassle. You have to source and buy an additional product and occasionally go through their claims process.
Background
Airfare pricing based on an American Airlines flight. Fare classes will vary based on airline and class packages.
Insurance prices and coverage will vary by trip, traveler, and provider. The data used here is an average from lower-priced quotes (but not the lowest) from those provided by John Hancock Silver, Tin Leg Gold, Travel Insured FlexiPAX, WorldTrips Elevate, battleface Discovery, Travelex Ultimate, Seven Corners Trip Protection Choice, AXA Assistance Explorer Elite.