Bankruptcy Travel Insurance: What Financial Default Coverage Actually Protects

February 16, 2024 - Meagan Palmer

No one wants to face the disappointment of losing out on a trip due to a travel supplier going under. Protecting your trip expenses with bankruptcy travel insurance could set your mind at ease.

Since the onset of the COVID-19 pandemic, more travelers have become aware that numerous travel suppliers have been significantly impacted by such events, with some facing financial insolvency. This could cause your trip to be cancelled or interrupted, neither desired when you’ve been looking forward to your trip.

As travel continues to ebb and flow, it’s important to protect against the travel companies you book with going under financially. Here’s how trip cancellation could help if your cruise, airline, or tour operator experiences financial insolvency.

Quick Answer: What is Bankruptcy Travel Insurance?

Bankruptcy travel insurance usually refers to a travel insurance benefit called financial default or financial insolvency coverage. This coverage can reimburse your prepaid, nonrefundable trip costs if a travel supplier, such as a cruise line, airline, or tour operator, goes out of business before or during your trip.

However, this coverage only applies if the insolvency occurs after your policy becomes effective and if the company that fails qualifies as a covered travel supplier under your policy. Many plans also require the financial default to occur a certain number of days after the policy purchase date.

Because these rules vary by plan, travelers concerned about supplier bankruptcy should look for policies that specifically include financial default coverage when purchasing travel insurance.

Key Takeaways 

• Bankruptcy travel insurance usually refers to financial default coverage included in some comprehensive travel insurance plans.

• Coverage can reimburse prepaid trip costs if a cruise line, airline, or tour operator becomes insolvent.

• Most policies require the insolvency to occur after the policy’s effective date, often at least 14 days after purchase.

• The bankrupt company must qualify as a covered travel supplier in the policy wording.

• Travel agencies typically do not qualify as suppliers, since they only arrange bookings.

• Purchasing travel insurance soon after your initial trip payment gives you access to more policies with this benefit.

What Is Financial Default or Bankruptcy Coverage in Travel Insurance?

Financial default coverage, sometimes referred to as bankruptcy travel insurance, is a benefit included in some comprehensive travel insurance policies. This benefit can reimburse your insured trip expenses if a travel supplier stops operating due to financial insolvency.

For example, if a cruise line or tour operator suddenly declares bankruptcy and cancels your trip, the financial default benefit may reimburse prepaid, nonrefundable trip costs that you insured under your policy.

Coverage may apply to:

• Cruise lines

• Airlines

• Tour operators

• Hotels or resorts in some cases

  
  

However, the benefit only applies if the company qualifies as a covered travel supplier under the policy terms. Always review the policy certificate to confirm whether financial default coverage is included. The experts at Yonder Travel Insurance can also help you narrow down options that include this coverage too.

Pro Tip: It can be helpful to check the financial stability of your cruise line, airline, or tour operator via the AM Best Rating Scale.

If My Travel Supplier Goes Bankrupt, Will I Get Reimbursed?

Travel insurance may reimburse your trip costs if a travel supplier becomes insolvent, but certain conditions usually must be met.

Most policies require:

• The insolvency to occur after your policy’s effective date

• The bankruptcy to occur a set number of days after purchase (often 10 days)

• The company declaring bankruptcy to qualify as a covered travel supplier

Travel suppliers are typically defined as companies that directly provide travel services, such as airlines, cruise lines, tour operators, or hotels.

However, companies that only arrange bookings, like travel agencies or online booking platforms, may not qualify as travel suppliers under many policies.

If your claim is approved, the travel insurance company may reimburse the unused, nonrefundable trip costs that you insured when purchasing the policy.

Pro Tip: Make sure you have the proper documents to support your claim. Without it, your claim could be denied.

Why Financial Default Coverage Matters for Travelers

While supplier bankruptcies are relatively uncommon, they can have major financial consequences for travelers when they occur.

Travel companies operate in industries affected by economic shifts, fuel costs, weather disruptions, and global events. When a travel supplier stops operating unexpectedly, travelers may lose prepaid deposits, cruise fares, or tour packages.

Financial default coverage is designed to protect travelers in these situations by helping recover insured trip expenses if a supplier stops operating due to insolvency.

Do You Need Bankruptcy Travel Insurance?

You may want to look for a travel insurance policy that includes financial default coverage if:

• You’re booking an expensive cruise or guided tour

• You’re paying large deposits months before departure

• Your itinerary includes multiple prepaid travel suppliers

• The company you’re booking with is smaller or less established

For trips with minimal prepaid costs or bookings made with large, financially stable travel companies, this coverage may be less of a concern. However, travelers who want additional protection for their trip investment often prefer policies that include financial default coverage for extra peace of mind.

Example: When Bankruptcy Travel Insurance Could Apply

Imagine you book a cruise vacation six months in advance and purchase travel insurance shortly after making your initial trip payment.

Three months later, the cruise line announces it is shutting down operations due to financial insolvency and cancels all upcoming sailings.

If your policy includes financial default coverage and the insolvency occurred after the policy’s effective date, the travel insurance plan may reimburse the insured prepaid cruise costs that cannot be refunded by the cruise company.

This example highlights why purchasing travel insurance soon after booking can be important when planning expensive trips.

What Happens When a Travel Company Goes Bankrupt While You’re Traveling?

In rare situations, a travel supplier may declare bankruptcy while travelers are already on their trip. In these cases, coverage depends on the specific benefits included in your travel insurance policy.

Some plans may provide trip interruption coverage, which can reimburse unused trip costs and help cover new transportation expenses needed to return home.

The good news is that all plans include travel assistance services, which can help travelers locate alternative transportation or accommodations if a supplier stops operating unexpectedly.

Is Bankruptcy Travel Insurance Easy to Find?

“About 80% of the policies we sell on Yonder include or offer some form of bankruptcy or financial default insurance,” says Terry Boynton, president and co-founder of Yonder. “Half of those policies are only available for purchase within a specific time frame from your initial trip payment date.” 

Even more reason to purchase travel insurance after making your initial trip payment.

Our friendly team can help you find a policy with bankruptcy travel insurance for worry-free trip planning. Give us a call or shoot us an email to walk through which travel insurance plan has the financial insolvency benefits you need.   

What Bankruptcy Travel Insurance Usually Doesn’t Cover

While financial default coverage can protect travelers from losing money when a supplier becomes insolvent, it doesn’t apply in every situation.

Many travel insurance policies will not provide coverage if:

• The supplier’s financial instability was already publicly known before you purchased your policy

• The company declaring bankruptcy is not considered a covered travel supplier under the policy

• The insolvency occurs within a restricted time period after you purchase the plan (often the first 7–14 days)

• The financial loss comes from a travel agency or booking platform rather than the actual travel provider

Because coverage rules vary by policy, travelers should always review the financial default or supplier insolvency language in the policy certificate. 

Also, if you miss the window to qualify for bankruptcy coverage, you can consider purchasing Cancel for Any Reason coverage, which has a slightly longer window to purchase.

How to Check if Your Travel Insurance Covers Supplier Bankruptcy

If you want protection against supplier insolvency, start by looking in the trip cancellation and trip interruption sections of your policy certificate. Not sure how to get there? Read our article on how to read and understand a policy.

Look for the following wording in the policy certificate:

• “Financial Default”

• “Supplier Financial Insolvency”

• “Travel Supplier Bankruptcy”

You should also confirm:

• Which companies qualify as covered travel suppliers
• Whether the policy requires the insolvency to occur after the effective date
• Any waiting period requirements (often around 10 days)

Learn more about other covered reasons in our full guide to trip cancellation travel insurance coverage.

Bankruptcy Travel Insurance FAQs