For big ticket travel purchases, travel insurance seems like a no-brainer. You’ve made a large investment and you’ve protected it—with either a stand alone policy, or the coverage that comes with your credit card—from the vicissitudes of life and travel.
But what if you paid for your flights and hotel rooms not with cash but with points and miles? Can you protect that investment?
The lowdown: in most, but not all cases, when things go sideways you should be able to get your miles and points refunded to your account without hassle or cost.
“There are a lot of programs that offer free changes and free cancellations right up until departure,” Nicholas Reyes, senior author for Frequent Miler told me. “So if you've used miles from a major United States-based program, like American Airlines or United, in most cases, you have free cancellation up until about 10 minutes before departures.”
Sounds good, right? Alas, not every program works this way, and there are sometimes cash fees associated with cancellations, even when points have been used. So let’s look at what can go wrong.
Airlines that don’t refund points when things go awry
According to Reyes, such international carriers as Iberia Airlines, KLM, Air France, and Etihad are far less generous than most U.S.-based carriers when it comes to refunding points. Reyes told me that if you’re a member of the Iberia Club (its frequent flyer arm), for example, and you have to cancel a flight that had been booked with points, you wouldn’t get any points back.
And you can’t get a travel insurance policy to protect your miles on the less generous airlines, because the actual value of points and miles is quite squishy.
“Miles and points are not considered cash,” Dave Grossman, founder of Your Best Credit Cards, told me. “So policies don’t offer refunds on those carriers where they are non-refundable.”
“The exception is if you are booking using credit card issuer points through [that credit card’s] own portal,” he went on. “So if you're using American Express Membership Rewards points, and you are booking through the American Express membership rewards portal, then those membership rewards points would be covered...if there’s an American Express travel insurance policy on your credit card.”
What happens if you use points accrued with a U.S. airline on a partner airline like Iberia that has draconian cancellation policies?
It all comes down to which airline you book through, not which airline you fly. If, for example, you book a flight with points to Spain on American Airlines, and they place you on an Iberian Airline's jet, you will get your points back should you cancel, because your original booking was with American.
Refunded points, but high cancellations fees
Here’s where things get really tricky….and potentially very expensive.
Grossman told me an illustrative story that made my hair curl. A number of years ago, he used points to book a week at an extremely posh hotel in the Maldives. Illness required him to scuttle his plans, and while he had no problem getting his points back, the hotel charged him $30,000 to cancel less than 90 days in advance. It took months of arguing for him to get that fee eliminated, but many won’t be that lucky.
Reyes has seen the same type of issue. “Most hotels allow you to cancel up until 24 hours in advance, but there are properties that have a 30 day cancellation window. So that is another ball of wax. It gets kind of complicated because if you were to cancel an award stay outside that cancellation window, many hotel programs are set up to give you your points back, but still charge you the nightly rate for the hotel room that you've canceled.”
In an interesting corollary, Grossman notes that even if he’d paid in cash for the hotel and gotten travel insurance, it’s possible he would still have been stuck with the fee. “Some policies don’t cover these types of usurious fees because it isn’t an insured deposit that's been lost, it's a penalty fee,” he warns. Therefore the insurance company can make the claim that this surprise fee wasn’t in the scope of what was being insured.
Advice: always check what the cancellation fees are before booking, and check whether your credit card, or an insurance policy, will cover these types of cancellation fees should they be charged.
Using Points for Non-Refundable Travel Products
Because basic fares are non-refundable, if you use points to purchase them, you lose your points if you have to cancel. This is the case on all carriers that offer these types of tickets, even the carriers that are usually generous about refunding points.
And now with Delta Airlines selling Basic Business Class fares, the amount of points squandered could go much higher than before.
It's all complicated, and too often opaque. But that's often the case with loyalty reward travel, isn't it? And with travel costs climbing (airfares alone are 25% higher than they were a year ago), battling your way through all the fine print and exceptions of loyalty programs may well be worth the time and effort.