Consumers Need Bankruptcy Insurance When Travel Companies Fold : Trips: Without coverage, travelers risk losing their deposit money and sometimes their ticket home. Cancellation insurance is another sensible option.

Is the tour company with which you have booked an expensive trip financially solid? Maybe not, but how are you to know? In the past couple of years, some very reputable travel companies suddenly have folded, and continuing uncertainty in the domestic and international economies could force others out of business.

The tourism industry has suffered some rough punches in recent months--the recession, the Persian Gulf War, the terrorism threat and a weak dollar abroad. Although the outlook has brightened considerably since the end of the war, the pummeling may prove fatal to some travel firms that were already on shaky ground.

If a tour operator, an airline or a cruise company goes bust, you could lose not only everything you already have paid, but also the cost of getting back home on your own if the trip already has begun. For a couple on a luxury tour, the loss could mount into the thousands of dollars.

One good way to protect yourself is to take out bankruptcy and default insurance, one of the more useful kinds of travel insurance on the market.

“I would not go without it if I was going on a tour,” says Ralph Davis, president of Travel Insurance Services of Walnut Creek, Calif. Davis is an insurance broker who has specialized in the travel field for 18 years. As a broker, he helps clients find the right insurance to meet their needs from among the many insurance products on the market.

Obviously, a traveler who must commit large sums in advance--for an all-inclusive escorted tour or a cruise, for example--is most vulnerable to loss and should seriously consider bankruptcy-default protection. On the other hand, independent travelers who don’t book their hotels in advance may be required to pre-pay only their airline tickets (which they must do if they want the lowest fare). Their need for bankruptcy-default insurance is much less.

As it happens, the woes of U.S. airlines are generally well-publicized--so travelers usually are forewarned of the possibility of bankruptcy. But the same is not generally true for tour operators and cruise companies.

When Eastern Airlines finally gave up earlier this year, nobody was surprised. But only the savviest of travel agents might have suspected something was amiss just before Exploration Cruise Lines of Seattle, a very respected company with seven small vessels, shut down suddenly in 1988. Hundreds of disgruntled travelers whose vacation plans were abruptly canceled were forced to seek a refund of their hefty deposits through the bankruptcy court.

To be sure, some segments of the travel trade either voluntarily offer or are required to offer deposit protection plans of varying sorts to their customers. A notorious exception, however, is the U.S. airline industry, which has no formal consumer rescue plan. Individual airlines will sometimes honor the tickets of a bankrupt carrier on a standby basis, especially in the case of in-transit passengers stranded far from home.

Cruise passengers have much greater protection. The Federal Maritime Commission requires cruise ships departing from U.S. and Puerto Rican ports to post a large bond, and the amount should be sufficient to cover a cruise line bankruptcy. But if the cruise originates in a foreign port--Canada, the Mediterranean, the Baltic and the South Pacific, for example--travelers are not covered. Cruise company bankruptcies are very infrequent, but they do happen.

America’s two major tour operator groups--the U.S. Tour Operators Assn. and the National Tour Assn.--also have set aside special funds to protect customers booking package tours. To qualify for a refund, however, you must buy your tour from one of the member companies. There are limits to both funds, but the associations consider them adequate to cover the bankruptcy or default of a member. When signing up for a tour, ask if the operator is a member of either of these two organizations. Both set professional standards that operators must adhere to in order to become members.

American Express is one major tour operator--and there may be others--that has a policy of protecting the deposits of customers who buy a cruise, a tour package or other travel arrangement through any of its many national and international offices.

Bankruptcy and default insurance is sold by travel agents, travel insurance companies and brokers such as Davis. Generally, bankruptcy-default insurance is available only in a package that includes trip cancellation and interruption insurance. Trip cancellation insurance protects your deposit if illness, a death in the family or other unforeseen circumstance causes you to cancel the trip.

Davis cautions, however, that some tour operators and cruise companies also sell trip cancellation and interruption insurance, and their policies often do not include a provision for bankruptcy or default of the tour operator, cruise company or airline. When buying any travel insurance policy, make sure you know what is covered.

Travel Guard of Stevens Point, Wis., which claims to have been the first company to offer bankruptcy-default protection, sells a policy that includes trip cancellation-interruption insurance. The cost is $5.50 per $100 of coverage. If you book a European tour that costs $3,000 for air fare and land arrangements, you could expect to pay $165 (or 30 times $5.50) to insure the full sum.

Actually, the chances that you might be forced to cancel a prepaid trip are much greater than the possibility of a bankruptcy involving one of your travel suppliers. But if you are debating whether to take out a trip cancellation-interruption policy, you should also consider the safety net provided by the bankruptcy-default coverage in these economically troubled times.

Although bankruptcy-default insurance may be in the spotlight right now, Davis strongly advocates purchasing trip cancellation-interruption insurance for its own sake. Typically, it protects your nonrefundable travel payments if you or a family member becomes ill before your trip begins or a family member dies or some other unforeseen circumstance prevents you from traveling. For example, a traveler might miss their plane because they get into an automobile accident en route to the airport, or they could be delayed by a construction roadblock or a traffic jam.

The interruption provision in a typical policy offers the same deposit protection if an unforeseen circumstance--including the illness or death of your travel partner--forces you to return home after you have already begun your tour. You are refunded the unused portion of your land arrangements, and the insurance will pick up the cost of a full-fare ticket back home.

“I cannot overestimate the value of trip cancellation coverage for any nonrefundable money you put down,” says Davis. “It’s expensive, but that’s because there are so many claims.”

In addition to bankruptcy-default insurance and trip cancellation-interruption coverage, travelers have these other insurance options:

--Medical evacuation insurance: Give it serious consideration, urges Davis. “You may go from here to Europe on a $400 ticket, but it could cost you $15,000 to come back home on a stretcher. Who’s going to pay?” The $15,000 is the estimated charge for flying a patient on a stretcher on a scheduled commercial flight. The tab soars to as much as $100,000 if you must be transported in a chartered ambulance jet.

Nobody goes abroad expecting trouble, but a traffic accident is always a possibility. If you are seriously injured, your personal health insurance may or may not pay to fly you home. It might cover the cost if you cannot receive adequate treatment where you are, says Melanie Marsh of the Health Insurance Assn. of America. But it probably won’t pay if you want to be flown home because you prefer the convenience and comfort of home. The cost for medical evacuation insurance is about $3 a day per person for the length of your trip, according to Davis. This will give you up to $100,000 of coverage.

--Supplemental health insurance: Your personal health insurance probably will cover any emergency medical treatment you require abroad. But there is a catch, says Davis.

You may have to pay the foreign hospital up front and then submit the claim to your insurance company once you are home again. However, if you have a supplemental health insurance policy, the insurance company will make the payment--or guarantee it--instead so that you don’t have to come up with the money.

As an alternative, Marsh suggests using a credit card just as you might at home. And to speed payment of the claim, you should carry extra claims forms so they can be filled out on the spot.

Supplemental health insurance is often part of a travel insurance package that provides for a 24-hour medical assistance hot line, which you can call for help in finding a doctor or getting into a hospital.

Good health insurance is particularly important to over-55 travelers, says Davis, “who are susceptible to medical problems with attendant allied expenses.”

Policies can be purchased both on an individual and family basis. Travel Guard charges $39 for one person who is taking a two-week trip. This fee provides coverage of up to $15,000 for emergency medical expenses. You should be aware that any medical problems you have before your trip may be excluded from the coverage.

Both Davis and Marsh urge travelers to find out what travel benefits their personal medical insurance provides before they leave home.