Do you Need Travel Insurance for a Home Exchange?

 

People purchase travel insurance policies to protect themselves against unforeseen events. If  you have to cancel a trip these policies will reimburse you for non-refundable purchases (depending on reasons for cancellation covered by the policy), and many will also provide emergency medical evacuation. These are both potential costly problems. The tricky question is whether the risk is high enough that it’s worth spending the money to buy insurance. Some home exchange websites now offer insurance for the swaps, and this is an additional insurance consideration for those who travel via home exchange. In this post I will explain the various travel and home exchange insurance options and give my take on who should use this insurance.

The value of general travel insurance

I have never purchased general travel insurance, and at this point if I do ever have to cancel a trip I will probably break even with all the insurance money I’ve saved. But I also don’t spend much money up front on my travels, so there isn’t much for insurance companies to reimburse. If I booked a prepaid expensive vacation I would be more likely to consider buying insurance.

On the other hand, a few years ago my aunt and uncle bought travel insurance on an expensive pre-paid tour of the Galapagos, from the tour company. When the tour company went bankrupt before her trip, she lost all her money and the insurance was useless. Travel insurance isn’t always a guarantee against problems.

For expensive pre-paid trips, and especially for those prone to sickness, I think travel insurance can be a good option. However, the lower cost plans are very restrictive about what they cover, and the risk vs. cost on insurance plans doesn’t necessarily make sense for everyone. Everyone needs to evaluate their personal situation and decide if travel insurance is useful for each trip. This includes reading the polices closely, and thinking carefully about who is selling you the policy and whether you trust them to pay out in case of a legitimate claim. And be sure to research your health plan to find out what they cover. Most offer some sort of emergency care coverage anywhere in the world, but they generally don’t cover medical evacuation.

According to a U.S. Travel Insurance Association survey covering travel between 2012 and 2013,  17% of Americans had travel problems that might have justified a travel insurance claim (travel plans were impacted by medical conditions, natural disasters including severe weather, or mechanical or carrier-caused problems). 22% of these affected travelers had travel insurance. A travelinsurance.com study agrees with this data: they found that 17% of people who buy travel insurance submit a claim at some point. That’s surprisingly high to me. Much higher odds of using travel insurance than other types of insurance policies.

Still, it looks like the odds of buying travel insurance and not using it are at least 80% if you are an average American.

I want to know how big the claims are from the 17% of people who use their travel insurance. A flight delay, lost baggage, or other minor problem might lead to a claim not worth more than the cost of insurance. It’s the expensive claims that indicate the big risk items, the stuff that might compel me to buy insurance. Travelinsurance.com reports 40% of claims are for trip cancellation and 13% are for medical expenses. In addition 13.8% are for trip interruption which could also be pretty costly. So let’s be generous and assume that all 67% of these claims are worth more than the cost of the insurance (and would not have been covered by medical insurance or other forms of coverage), and some are pretty sizable. This suggests that 11% of people who buy travel insurance get significant benefit from it.

Will you fall in the 89% who don’t need travel insurance? Consider the following:

• How expensive is your trip?
• How flexible are your plans? Is it possible to change them with little or no cost if something happens (a big hurricane at your destination, an unexpected illness, etc)?
• How likely are these events to happen? Are you traveling during hurricane season? Are you prone to illness? Are there other things in your life right now likely to force you to cancel your plans?
• Can you afford to lose the money you have spent on the trip if you have to cancel?
• What does your existing medical insurance cover?

Also consider whether you already have sufficient insurance from one of your credit cards if you use it to pay for your travel purchases.

Here’s a decent overview of credit cards and travel coverage.

In addition to the above general insurance considerations, for home exchange travel there are some special considerations and a lot of options and variations on types of insurance.

Is insurance needed for home exchanges?

If you own your home you already have home owners insurance. This will cover major issues like someone being injured in your home, but probably won’t allow for claims of theft from invited guests in areas of the home that were not declared off limits. Everyone’s policy is different so you should check with your insurance company about what is covered.

Similarly, if you swap cars the authorized driver is covered by your policy. You can call your auto insurance company to confirm, but if let your friends drive your car, this should be no different.

I think this is a pretty good overview of how home and car insurance policies cover home exchange from an insurance broker who interviewed some folks in the home exchange industry

So what does insurance through home exchange sites offer that your existing home and car insurance policies don’t cover?

• Accidental damage
• Intentional damage
• Theft in authorized areas
• Cancellation

Of all these possibilities, cancellation is the one that I think is the biggest risk for home exchange. Sometimes things happen that force people to change their plans, and with a house swap this impacts both parties. In this case the insurance may provide coverage for alternative lodging costs or reimbursement for cancellation of travel arrangements.

General travel insurance won’t cover home exchange cancellations by your swap partner unless you have “cancel for any reason” policies. And even then, these policies do nothing to address the issue of damage or theft in the swapped house.

Here’s a good overview of cancel-for-any-reason insurance.

A number of home exchange sites are now offering insurance to their members. This is an optional feature, usually on a per-exchange basis. For some people this is the added security they need to feel like they can trust the system of home exchange. Buying directly through your home exchange service provides the advantage of covering both swap partners and addressing the specific needs of home exchange travelers.

Types of home exchange insurance

Only a few of the home exchange services currently offer insurance directly to their members. Below is a list of all that I know about, along with information on what types of insurance they provide.

Two exchange sites collect a security deposit which is a lump sum of money that the site holds for the swappers until the trip is over. If no issues are reported the money is returned, minus a fee which ranges from 3.5% (GuestToGuest) to 10% (LoveHomeSwap). In the case of a simultaneous swap both parties will pay for this deposit. For or non-simultaneous swaps (including points based swaps) only the person using the exchange pays.

Knok offers insurance as a part of their membership: “Knok Home Insurance covers damages – when these are not covered by your regular homeowners’ insurance – of up to $150,000 with a deductible of $1,500.” Knok’s membership pricing has been all over the map in the past year, starting at a fairly average monthly rate, then skyrocketing to $795/yr weekends, $1795/yr unlimited, and now it’s back down to $180/yr. If insurance is important to you, this is a decent value for the membership fee.

Homelink has an innovative approach of creating an optional fund for members that everyone paying in the $25/year fee can use if they have a cancellation of a swap: “In any one year the fund’s total is entirely dependent upon the number of participants and the amount of premiums contributed. And the amount of compensation available is dependent upon the number and amount of claims.”

HomeForSwap offers third party insurance for a fee of 50€ per trip if the exchange is in Europe and 80€ if it is outside Europe. In addition to the security deposit option described above, GuestToGuest also recently started offering third party insurance that is paid for by the guests but which covers both swappers and includes cancellation coverage. They offer some detailed explanations and scenarios here.

Confused about your options yet? Here’s my summary of generally what various types of insurance will cover. There are exceptions.

Is home exchange insurance worth the cost?

At first I was a fan of home exchange insurance and security deposits. After all, I’m opening my home to a stranger so it seems like a nice idea to have some way to pay for damage or theft. However, after doing a lot of home exchanges I’m starting to wonder if my use of insurance is based in science or just an irrational fear related to letting someone else stay in my home.

When I ask the people running home exchange sites about problems that swappers report, the response is always the same: close to 100% of exchangers are happy and have no problems. The kind folks at GuestToGuest provided me with statistics on their security deposit (which only covers the host, not the traveler):

• 99.6% of deposits are returned in full
• 0.3% are returned partially
• 0.1% are not returned at all

That is a tiny portion of security deposits actually being used. Here’s what it looks like in a chart:

This is from one of the biggest home exchange sites (in terms of membership size), and one of the few that is free and focused on non-simultaneous swaps. These are characteristics that I’d expect to increase the risk of damage/theft to homes. But only 0.4% of swaps are paying out of the security deposit, and I assume some portion of those are from people who were perfectly honest and just accidentally broke something that they would have paid for even without the deposit.

I hear the same thing from people in the home exchange community. Sometimes people make a mess in your home, but nothing that costs more than a serious cleaning would require. And for the rare occasion where a swapper breaks something or gets a ticket in your car, most home exchangers will just tell you about it and reimburse you for the cost. Insurance isn’t necessary in these cases.

In fact I wonder if we’re not actually safer because someone is in our homes while we are traveling, preventing easy theft by someone who targets houses that are empty while the owners are out of town.

I know there are a few rare cases where bad things happen in house swaps, and because of this some people want the recourse to collect from insurance. Based on the information I report above, it looks like a better gamble to buy general travel insurance to protect the cost of your entire trip than to buy home exchange specific insurance. But if you just want to protect your home, or believe that your only risk is cancellation by your swap partner, then home exchange insurance might be your best option.

I still use the security deposit feature on GuestToGuest and LoveHomeSwap, but I’ve started to lower the amount I require so that I lower the cost to my swap partner, especially on LoveHomeSwap with the 10% fee. I respect that these sites are offering a service and using that as a way to monetize their work. I’m getting great value from their services, but I like to approach all of my trip expenses scientifically, and researching this post has let me to reconsider how I think about all forms of travel insurance.

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Bottom line: If you’ve spent a lot of money on airplane tickets, pre-paid tours, and other trip expenses, insurance against cancellation may be a good idea. But if you are worried about people destroying your home or stealing your jewels and fine china, this is a very unlikely outcome of a home exchange. Think about what you want to insure against, consider your risks, and investigate all your insurance options before buying a policy.