Package holiday vs booking independently: What travel insurance do I need?

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Financial Protection, Travel Insurance and Insolvency Cover

The level of financial protection you have for your holiday if a supplier becomes insolvent depends largely on how you booked it, which in turn means that how you booked your holiday will also have an impact on what level of travel insurance cover you should buy.

See our quick check diagram to see if your holiday is financially protected or if you need travel insurance with insolvency cover

This is the first part of our series detailing how booking your holiday as a package or independently affects the travel insurance cover that you need – starting with financial protection, travel insurance and insolvency cover.

The level of financial protection you have for your holiday if a supplier becomes insolvent depends largely on how you booked it, which in turn means that how you booked your holiday will also have an impact on what level of travel insurance cover you should buy.

If you don’t want to read the rest of this article, here is what you need to know in one sentence:

By law, your holiday is only protected in the event of insolvency if you book a traditional package holiday through a bonded tour operator, if you book your holiday in any other way you should consider buying travel insurance that includes insolvency cover.

You can also check out our financial protection and travel insurance quick check diagram for a short summary.

Alternatively if you’re interested, read the full details below on financial protection for your holiday, including ATOL protection and travel insurance with insolvency cover or scheduled airline failure.

The way things were . . .

Travel Agent, New Row

Booking your holiday at a travel agent

In the ‘olden days’ before the advent of low cost airlines and the internet things were pretty straight forward.  From the 1950s, when package holidays started to become popular, until the late 90s the majority of us went to our local travel agent and booked a package holiday from a tour operator, or we may have booked direct with the tour operator over the phone or using a booking form in the back of their brochure – remember them!

(For more on the history of travel and holidays – see our travel insurance and holiday timeline.)

Because you bought a package holiday, it was protected under the ATOL scheme, which was introduced in 1973 in order to ensure that holiday makers wouldn’t end up being stranded abroad, or losing their money if a tour operator went bust.

Managed by the CAA, the ATOL scheme initially only covered charter flights, but was extended to cover scheduled flights in 1995.

You then bought a standard travel insurance policy from your tour operator or travel agent which provided cover for the things that your tour operator wasn’t responsible for, such as emergency medical expenses, cancellation (if you needed to cancel) and personal possessions.

Now the way we book holidays has changed and things are very different . . .

Homework 3 - Travel website

Booking your holiday online

The way we book holidays has changed dramatically over the years and as holiday makers we have much more freedom to travel where we want, when we want and how we want. Mixing and matching products that take our fancy from different suppliers.

Financial Protection for your holiday – the law

There are two statutory schemes that exist to protect your money and to ensure that you’ll be brought home if your travel company goes out of business. These schemes apply to package holidays and to some flight-only arrangements.

There are no legal requirements that flights bought direct from an airline, or accommodation-only sales, are financially protected. This is when you need to make sure that your travel insurance includes insolvency cover.

If you book a package holiday things are still pretty straight forward.

A package holiday is a holiday that consists of two or more elements, e.g. transport and accommodation that are sold to you as a package at an inclusive price.

The Package Travel, Package Holidays and Package Tour Regulations 1992 are overseen by the Government’s Department for Business, Innovation & Skills. These Regulations require organisers of package holidays to provide protection for your money and to bring you home if necessary.

If you book a package holiday that includes a flight, then your money must be protected under the ATOL scheme. This is operated by the Civil Aviation Authority (CAA). If you book a package holiday that doesn’t include a flight, then your money will be protected either by way of a bond held by a trade association, or by way of an insurance policy, or by placing your money into a trust account.

If you have bought a package holiday, you obviously need to buy travel insurance, but buying travel insurance with insolvency cover is not important because your holiday is protected by the ATOL Scheme in the event that your tour operator becomes insolvent.

Protection for flight only bookings

Ticket to SG + Passport

Flight bookings made direct with an airline are not ATOL Protected. Consider buying travel insurance with insolvency cover.

If you book a flight through a bonded tour operator your money will be protected under the ATOL Scheme, as the Civil Aviation (Air Travel Organisers’ Licensing) Regulations 1995 require tour operators who sell flight-only arrangements to provide protection for your money and to bring you home if necessary.

Unfortunately this protection doesn’t apply to flights that are bought directly from an airline. Flight only bookings made with a travel agent aren’t always protected either. You should ask the agent at the time of booking if there is any financial protection in place.

So, if you book flights direct with an airline, or with a travel agent that doesn’t have any financial protection in place then you should buy travel insurance that includes cover for insolvency.

What financial protection is there for independently booked holidays?

In short, there isn’t any, unless make sure your travel insurance includes insolvency cover.

If you book elements of your holiday independently, booking different arrangements such as flights, hotels and car hire direct with different suppliers your holiday will not be protected under the ATOL Scheme. To protect the money you have paid for your holiday and provide cover for additional expenses if your holiday supplier became insolvent whilst you were abroad you should make sure that your travel insurance includes cover for insolvency.

You should also be careful if a travel agent puts together a ‘package’ for you by booking different elements with different suppliers on your behalf. This is not the same as booking a standard package holiday offered by a tour operator and may not have the same level of financial protection.  In this situation you should ask the travel agent what level of financial protection they can offer in the event that one of the suppliers becomes insolvent. Again, if there is no financial protection in place, buy travel insurance with insolvency cover.

Travel insurance with insolvency cover

So, now to the point of this very long winded article, to highlight how, if you haven’t booked a traditional ‘package’ and therefore your holiday is not protected under the ATOL scheme, you can buy travel insurance cover to protect against the insolvency of one of your holiday suppliers.

Travel insurance cover for insolvency can be called a number of different things, from something simple like ‘Insolvency Cover’ to ‘Scheduled Airline Failure’, which isn’t usually limited to the insolvency of airlines as the name suggests, or Dynamic Packaging Cover which probably means very little to anyone outside of the insurance or travel industry.

These sections of your travel insurance policy, which may be included as standard, or may be an optional add-on are designed to provide travel insurance cover for the insolvency of a holiday supplier that doesn’t fall under the ATOL Scheme or any other bonding that would protect your money.

Therefore if you have booked a traditional package holiday there is absolutely no point buying an insolvency cover add-on for your travel insurance policy, because it would not cover the insolvency of a bonded tour operator and you would still need to make a claim with the CAA in the event that they ceased trading.

However if you have booked your holiday independently then you should definitely consider adding insolvency cover to your travel insurance to protect the money you’ve paid for your holiday in the event that one of the suppliers becomes insolvent and ceases trading.

What does travel insurance with insolvency cover include?

Obviously it depends on the travel insurance policy you buy, and you should always read the terms and conditions to check that the travel insurance cover is suitable, but here is a summary of a typical insolvency cover or Scheduled Airline Failure cover.

There will be an overall amount of cover, say £1000-£2000 per person, this would be the total amount that you could claim from your travel insurance in the event that a holiday supplier becomes insolvent, to get the right level of cover for you, think about how much each element of your holiday cost.

If the insolvency occurs before departure:

Cover is provided for irrecoverable sums lost as a result of the insolvency of your travel or accommodation supplier, with whom you had made a booking and paid in advance. (Where the holiday does not form part of a bonded package).

If the insolvency occurs after departure:

Travel insurance cover is provided for additional pro rata costs incurred in replacing that part of the travel arrangements to a similar standard to that originally booked, or if curtailment of the holiday is unavoidable – the cost of return transportation to the United Kingdom to a similar standard to that originally booked.

As I said before insolvency cover or scheduled airline failure can cover much more than just the insolvency of an airline, it can also cover; hotels, car ferries, villa’s abroad & cottages in the UK, railway journeys, coach journeys, cruises not bonded, car hire, caravan sites / campsites / mobile homes, camper rental, safaris, excursions and  theme parks. Always check your travel insurance policy wording for details.

And finally, a quick recap to finish off; by law, your holiday is only protected in the event of insolvency if you book a traditional package holiday through a bonded tour operator. If a travel agent books elements of your holiday separately you should check what level of protection they have and consider buying travel insurance that includes insolvency cover. If you book elements of your holiday separately direct with different suppliers you should buy travel insurance that includes insolvency cover.

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