Don't get ripped off by your travel insurer!

Many travel insurers leap over each other to sell you more and more cover, but do you really need it?

How much travel insurance cover do you really need?

To some extent, it's not for me to say, because only you know how accident-prone you are or how likely it is that you'll have to cancel your holiday for one of the reasons allowed in a policy. However, if you've ever gawked at insurers offering £10 million of cover for medical expenses and £3,000 for baggage, you're not the only one. It can be hard to imagine if you'd ever need that much.

I've begun some research (and done a few rough sums) to see how much cover you're really likely to need. Here's what I've found so far.

Personal liability

This section of your travel insurance policy is one that's relatively easy to get to grips with. If you injure a young muchacho in Spain earning the equivalent of £30,000 per year and that person can't work again, he'll have lost earnings of more than £1m for the rest of his 40-year working life. You're responsible for that, which means you are 'personally liable'.

I believe that £2m should adequately cover all but the most unfortunate of circumstances (such as injuring someone earning £1m per year, but there aren't many of those people around). It depends on your own attitude to risk as to whether you want to pay extra for more cover.

Medical and emergency expenses

Direct Line found that the average medical costs for policyholders abroad were just £700 in 2008, which is easily covered by most travel insurance policies.

However, the insurer also states that £1 million claims do happen. I don't know what series of events could cause a claim to be so expensive. Perhaps you have plaque in your arteries and Doctor Franklin in the US tells you to have an emergency heart bypass (which could cost £140,000). You go for a walk to calm your nerves but panic instead, having a heart attack (costing possibly tens of thousands) and falling off a cliff, ending up like this.

It then costs you £25,000 to get home by air ambulance accompanied by a specialist. (The cost of getting you home is called 'repatriation'. It's sometimes included within the medical expenses limit and other times has its own smaller limit, so check the contract.)

I don't know what the total bill would be. It certainly might be more than £1 million, but looking at various more realistic scenarios and estimating their cost, I still can't get the final bill to come close to £1 million.

Still, and unfortunately, I'm not yet in the position to be able to confidently recommend lowering the minimum recommended cover, because I haven't yet been able to get all the information I need. I'm getting more data but it's taking its time to arrive. Till it comes, I suggest you stick with the standard guidance of £5m minimum, as arbitrary as it may seem to be right now.

Cancellation cover

This is extremely variable. Cover of £3,000 is often recommended, but it depends entirely on your holiday costs. My holidays normally cost nothing like that. Combined with the excess (which might be, say, £75), this cover is much less useful for me.

Looking at various surveys over the past five years, estimates of average holiday costs vary from £1,600 to £2,700 - but that's for everything, including food and entertainment. £3,000 is surely excessive then for most people just to cancel their holiday. I won't go so far as to recommend a minimum for you, though, as it's too variable depending on how expensive your trips are.

Baggage

A minimum of £1,500 of cover is typically recommended, which seems abominably high to me. You may need much less than you think, because most insurers pay the current re-sale value of the property, not the replacement-as-new value. If your baggage is just delayed you can usually get by for a while without it and with minimal costs and, in any case, many policies limit your claim in this case to around £100 anyway.

Again, I can't put a figure on baggage replacement as it depends what you take with you. Consider that your clothes second-hand may be worth a tenth of the purchase price. Jewellery might keep its value, but how much do you really need to take with you?

Also, if you just take hand baggage, the risk to you of losing your things is much lower.

Price matters!

If you compare policies and find you can get higher cover for a few extra pence, you may prefer to opt for the extra protection. Sometimes, indeed, you get extra cover for no additional price, which may indicate that no one will ever need it!

However, if the higher cover policy is a lot more expensive than the rest, you should think carefully about the risks relevant to you and your own attitude to risk. I hope my article has helped you to form your opinion on this.

I suggest you look out for my next article on travel insurance, as it will better help you decide which policy to buy. Travel insurance has all sorts of exclusions and limitations that aren't properly explained by just looking at the four key figures I've mentioned above. I'll tell you which claims are usually rejected (just because your cover is £3,000 for possessions, it doesn't mean they'll replace your £2,000 watch!) and how to complain if you feel you weren't properly told about exclusions.

> Compare  travel insurance through our sister site, Fool.co.uk

> Read: Bag a luxury holiday for £1.