When Is Add-On Protection Worthwhile? (podcast)

00:36
Thomas is a senior client service manager here at Palisades Hudson, as well as a Certified Financial Planner® certificant. He's a member of our firm's investment committee and its Entertainment and Sports team, and he works with clients across the country. Thomas, thanks so much for joining me for another episode.

Thomas Walsh
Of course, Amy. It's great to be here.

Amy Laburda
So before we dive into discussing your actual advice, I thought we should just take a minute to clarify our terms before we get into it. When we're talking about service plans or extended warranties or manufacturers’ warranties,

01:06
what are those three things and what are we talking about with them?

Thomas Walsh
OK, yeah. So let's start with the basics. There's a manufacturer's warranty, which is included automatically when you buy most products. And that one protects you if the item you're purchasing has a defect in materials or workmanship. And it's usually for a limited period of time, like 60 to 90 days, or around one year. A service plan

01:34
or extended warranty, that's optional coverage that you pay for. The idea is that it extends the length of that initial warranty or it adds protections the manufacturer doesn't include, like accidental damage or like power surge protection. So you're essentially paying for extra time or a broader scope of coverage.

Amy Laburda
OK, so a service plan and an extended warranty are similar items, and a manufacturer's warranty is sort of a qualitatively different thing.

02:04
So it feels, at least to me, anecdotally, like a huge number of products now come with the option to buy this extra coverage. Is that just confirmation bias, that I've been looking for it? Or does the data hold out that these kinds of things are widespread?

Thomas Walsh
You know, the data definitely holds out that these have become very widespread. The global extended warranty market was valued at about $130 billion in 2022. It's projected to reach

02:33
$286 billion by 2032. Consumers, they spend more than $40 billion each year on service plans in the U.S. alone. So retailers have learned that extended coverage is extremely profitable. And because of that, you'll see these offers on everything from expensive electronics down to inexpensive accessories.

Amy Laburda
Do you have any sense of what the most common things that people buy these kinds of service plans or extended warranties for are?

Thomas Walsh 03:02
Yeah, so the big categories are electronics, you know, things like smartphones, laptops, TVs. And then there's appliances, especially larger ones like refrigerators, washing machines. After that, you can find coverage on power tools, furniture, watches, really almost anything that retailers can attach a protection plan to. Pretty much if it plugs in or has a moving part

03:30
or charges, there's chances that someone is offering a service plan on it somewhere.

Amy Laburda
Yeah. I've run across ads for things called home warranties. Now, I'm not a homeowner, so they've never been very relevant to me. But what are those? What are they advertising?

Thomas Walsh
Yeah. So home warranty is a little different. It's going to bundle coverage for major systems in your home. You know, think HVAC, water heaters, electrical systems, and sometimes appliances too.

03:58
They're often marketed to homeowners who don't want surprise repair bills. The important thing to know is that they're not the same as homeowners insurance, and claims related to them can be kind of hit or miss. You really need to read the exclusions carefully. But I'll add that a home warranty, it can make sense if your home or major systems are older or you don't have a large emergency fund to cover those unexpected repairs.

04:28
It makes less sense if you have a savings buffer that you can use to cover the cost of repairs, or your home or appliances are newer, because they're likely still covered under the manufacturer's warranty.

Amy Laburda
So to back up a little bit to that list of items that you gave, common types of things. I feel like in my personal life, you expect, when you're buying a phone or a laptop,

04:55
to get this ask. But it feels like these days I'll be buying a USB-C cord and it'll be $15, and they're like, “Would you like an extended warranty?” Which feels on its face a little bit absurd. You mentioned earlier that these are a big profit center for retailers. Is that really the main driver of this kind of expansion that we've seen?

Thomas Walsh
Yeah, you know, I think it's... It's sort of a result of consumer behavior mixed with

05:21
attractive profit margins for the companies that offer these plans. Retailers make a significant markup on these types of plans. Sometimes it's actually more than the profit on the actual product. They're making more off the service plan, at times. And most people never actually use the service plans. So from the company's perspective, the risk is fairly low and the reward is rather high.

05:49
They're also responding to the fact that people hate the idea of replacing something expensive, you know, unexpectedly. So the pitch is somewhat a play on emotions that, you know, spending a little more now will help protect you from this big bill later.

Amy Laburda
Yeah, I mean, so that's the retailer side. Flipping back to the consumer side, obviously, it's easy for me to laugh off the $15 USB cord service plan. I can just replace it. It's fine. But if you're laying out

06:17
hundreds of dollars, say, on a brand new laptop, there's that dread of, oh, what if something happens? What if I destroy it right away somehow? But on a more practical side, if we're sort of putting emotions in the backseat, is the service plan ever worth it to hedge against the risk of an expensive problem?

Thomas Walsh
So most of the time I would say no. Extended warranties, they often overlap heavily with the manufacturer's warranty.

06:47
And many problems typically show up early within that initial period that's still covered by that warranty. And then on top of that, I guess laptops and electronics are generally getting more reliable over time. So they are lasting longer and you're having somewhat less issues, I would say, at least during any of the coverage period you could get with the service plan. I usually tell people to

07:16
check what the manufacturer already covers. Check what your credit card covers, because there may be protections. And then ask whether paying that extra amount, if it truly shifts enough risk off your shoulders to be worth it. But I should — I don't want to sound too anti-extended warranties. So I guess… Earlier this year, when I bought a new MacBook at the beginning of this year,

07:45
I actually did opt in for the AppleCare+ service plan that they offer. The main reason I purchased it was because the service plan covers accidental damage, where the standard manufacturer's warranty did not cover [it].

Amy Laburda
Right, it's just defects in manufacturing.

Thomas Walsh
Correct, yes. So my previous laptop actually died because of an accidental water spill. So I was a little more sensitive to that risk, I guess, this time around.

Amy Laburda 08:14
Sure.

Thomas Alsh
So in this case, the… You know, all the coverage details and the fee, it felt reasonable relative to the high price of the laptop. So, you know… So there are situations where the extra protection makes sense. It just sort of depends on the details around the product you're purchasing and then your own experience.

Amy Laburda
Right. Well, I mean, while we're talking about expensive purchases, I think a car is one of the biggest ticket purchases most people are making in their day-to-day life.

08:44
And those often come with an offer for a service plan or extended warranty. Is that one situation where it may be worth it, or is that one where again, you just sort of have to look at your own situation?

Thomas Walsh
So cars are one area where extended warranties get more complicated. A manufacturer's warranty on a new car is usually pretty solid. It's often three years, 36,000 miles bumper-to-bumper coverage and even longer for the drivetrain.

09:12
If you want extended coverage, I'd only consider buying it, really, from the manufacturer, not a third-party service contract. Even then, only after you've had the car long enough to know whether it's really worth it.

Amy Laburda
So you mentioned checking what's in the manufacturer's warranty before you make a decision about the service plan.

09:34
Is there a way to find that out before you're making the purchase? So a way to track down that information?

Thomas Walsh
Sure. So most companies are going to publish the full warranty terms right on their websites. I always recommend looking it up before you buy, so you know what's already included. The limitations and exclusions are usually very clear once you read the fine print.

Amy Laburda
And is it similar… Places that offer service plans or extended warranties, do they usually make those available too? Or is it

10:03
sort of more dependent on the provider?

Thomas Walsh
Most do. You can find the information online. I'm not sure that it's actually required, but most retailers will post that information.

Amy Laburda
And when you're looking at those extended warranties or service plan details online, are there any specific details you should be looking for, either red or green flags, as you're sort of examining the details of the plans?

Thomas Walsh
When evaluating an extended warranty, it's important to focus on

10:32
the actual coverage that's involved, its cost, and then I would say the likelihood of needing it. Check if the warranty covers parts, labor, and specific failures like mechanical, electrical, or both. And then look for items commonly excluded in the warranty, like accidental damage or normal wear and tear on a vehicle, for instance.

11:01
Some warranties let you extend coverage to accidental damage or service calls at extra cost. And you should consider whether the product is likely to need repairs after the manufacturer's warranty is going to expire and how the cost of those repairs compare to the cost of the extended warranty. And then you want to think about the likelihood of needing certain repairs when you're considering their costs.

11:30
If it's a very low probability of happening, then you can reduce what the cost would be in your cost benefit analysis. And then finally, the claims process and the reputation of the company is a very important factor. Where are their service centers located? How is their response time? Then what are their fees and deductibles, if you do end up needing to work with them?

11:59
So it's a lot to evaluate, but thinking through it comprehensively is really the only way to determine if it's really going to be worth it or not. And an extended warranty is generally worth considering only if the product is expensive to repair, if it's prone to failure after the manufacturer's warranty, or [if] the warranty provider is reliable.

Amy Laburda 12:25
As we're talking about this, it's not entirely dissimilar, it sounds like, from insurance, right? You're paying a certain cost to guard against a theoretically more expensive uncertainty. And as we discussed, retailers come out ahead, because a lot of people pay for this coverage and never make a successful claim on it, which then subsidizes the few times that they have to pay for it. But what really makes these service plans different from traditional insurance?

Thomas Walsh
So insurance is going to protect you from

12:53
large, unpredictable losses. Service plans, they usually cover small, predictable failures. And because the cost of the item is known, companies can price these plans in a way that heavily favors them. With insurance, there's regulation and underwriting. With service plans, there's much less oversight and far fewer consumer protections.

Amy Laburda 13:18
So we've talked in some of our earlier episodes about insurance about the possibility of self-insuring. Now, for many of the things traditional insurance is good for, that's not practical for a lot of people. But it sounds like this is a place where that might be more in play. Where if you're setting aside a certain amount of month or a certain upfront fee that you would have paid for a service plan and just keep that in a savings account, is that going to be a better hedge for a lot of people?

Thomas Walsh
Yeah. So the best alternative

13:45
to that service plan, it really is to self-insure, meaning save the money instead of paying it to a plan provider. Then if something breaks, you repair or replace it using the funds that you've already set aside. The funds that would have gone toward the service plan, you could instead add those to your emergency fund, or keep them in a separate savings account even, with other cash that would otherwise have gone toward a service plan.

14:15
Preferably that money is accumulating some interest over time, which can give you some further cushion when a repair expense inevitably crops up.

Amy Laburda
So not to derail this conversation to talk too much about emergency funds, because we've discussed that previously, but from a financial planner's point of view, how do you tell when something's an emergency? I feel like most people in my life either fall into the category of everything's an emergency or nothing ever is.

14:42
How do you avoid that pitfall?

Thomas Walsh
Yeah, so that's a good question. And an emergency, you know, generally it should be viewed as something that's essential and unexpected. Like, you know, a car repair that has to happen so you can get to your job or maybe a broken appliance that your household relies on regularly. Other things, you know, like a surprise medical bill or job loss.

15:12
Those are obviously major ones. Those would all be considered emergencies. On the other hand, replacing a luxury item or maybe upgrading something like your cell phone because it's a slightly outdated model, those types of expenses generally shouldn't qualify.

Amy Laburda
Yeah. A broken Nintendo Switch probably doesn't make the cut.

Thomas Walsh
And I will add, just on emergency funds, just as a brief refresher…

15:41
Your emergency fund, it's meant to give you some cushion when there is a true emergency that requires cash that you didn't anticipate or foresee having to spend. The amount you should maintain in your emergency fund is a very individualized answer. But the general rule of thumb is to maintain three to six months of living expenses, which is mostly meant to keep your household running.

16:06
should you be unable to work or you lose your job. If you're having uncertainty over the amount you actually need to save and that's keeping you from maybe getting started, I'll point out that our colleague, Ben Sullivan, he wrote a very useful piece — it's titled “The Elusive Right-Sized Emergency Fund” — that I highly suggest checking out on our website if you're facing this issue.

Amy Laburda
Yeah, I'll link that in the show notes. Ben really did a great job of

16:34
talking about that analysis paralysis and how it can get to you. I definitely understand it. So while we're on the topic of emergency funds, I'm going to tell a story on myself, hopefully to make some of our listeners feel a little less alone if this happened, though you already told on yourself with the MacBook, so we're all here together. I bought a new phone a few years ago, and it arrived before the case did because I bought them from separate places. And I was like, it's fine. I'm a careful person. I'll just use it without the case for a couple of days.

17:04
And that is how I discovered that my desk is not perfectly level, because the phone slid right off the desk onto the floor. [The] screen immediately, fully broke. I couldn't use it at all. And I had declined the service plan, you know, a week or two before when I purchased it. So I just felt so silly. But I did basically what you said I should do. I had the funds in my emergency fund. I took it to a repair shop.

17:30
They got it back to me within 24 hours. The phone has worked fine for the two or three years since. But I remember at the time feeling so silly that I was like, I could have bought this service plan. It would have covered accidents. Because, like, it was my fault. You know, there was no way of arguing that it was a manufacturer's defect. And I remember the sort of sinking feeling when like you've caused it or like, you know, I assume a roommate, a family member, one of those. You're just like, oh, I feel so dumb.

17:59
So while I did the thing you described, it worked fine. It didn't hit my budget in any problematic way. I had the money, I didn't have to go into credit card debt for it. But it feels like I didn't do the right thing, even though I really did in a lot of ways. So I guess I wanted to ask you a little bit, as a financial planner, about the gap between making a sensible financial plan and following it and that sort of emotional reaction when something expensive in your life breaks, either

18:28
fully by accident or because you misjudged. So do you think that sort of emotion can get tangled up in the extended coverage decision-making process?

Thomas Walsh
It certainly can. But because you had that plan in place ahead of time and you were able to fall back on that plan, even amidst the emotions you were feeling — because breaking something expensive, it does feel awful. And especially if you did it yourself or something.

Amy Laburda 18:58
Yeah.

Thomas Walsh
So yeah, it can, you know, it's… Even if the financial hit is manageable, it still doesn't feel good. But because you have that plan, you just have to trust in yourself that you're doing the right thing and you're sticking to the plan, which is being disciplined, which is the most important part. You know, that's also why marketers know this, and they like to frame these plans as sort of a peace-of-mind purchases, when you're paying that extra for the service plan. And the truth is that

19:26
If you have a solid savings cushion and you can absorb most of these bumps without paying extra for protection that you're, you know, you're probably likely never going to use.

Amy Laburda
So beyond saving a healthy emergency fund and saving up for things that aren't emergencies, you know, no electronic gadget lasts forever. If you want to replace that Nintendo Switch, that's a savings goal.

19:49
Other than those two things, [is] there anything else we should do to keep sort of accidents or other problems with our stuff from derailing our monthly budgets?

Thomas Walsh
Yeah, so there's many things you could do. You know, I'd say some of the important ones are to know your consumer protection rights. Many states actually require a repair or replacement of items if something is truly defective.

Amy Laburda
Yeah.

Thomas Walsh
You know, you'll want to… You'll you want to look up your state's what's called an “implied warranty

20:18
of merchantability” laws, to see exactly, sort of, what your state requires and offers as a remedy. In this case, items that are sold “as is,” which you'll see, those would not fall into this category. They would not be covered under those protection laws. Another thing, you could pay for big purchases using a credit card because many cards, they automatically extend warranties or they offer some

20:47
form of damage protection. I guess another thing is to practice good maintenance with your things. Simple habits, they can keep your items running longer and at high efficiency. And lastly, if you're a do-it-yourselfer, let's call it, it can be worth pulling up a YouTube video for maybe repairing low-stakes items. But for anything that's really expensive or still under warranty,

21:16
I definitely recommend being a little more cautious. Those small fixes on expensive appliances or home systems can turn out to be a lot more expensive than the cost of that service call if anything goes wrong. And I'll spare the details there, but I learned that one the hard way.

Amy Laburda
Oh no. Well, and I imagine too, if you DIY and it goes wrong, there might be voiding of other protections that were already in place at that point too, to worry about.

Thomas Walsh
Correct. Yes, that did happen

21:46
in my case as well.

Amy Laburda
I'm sorry. Didn't mean to prod a sore point. So I often get a laugh when I get those ubiquitous spam voicemails that are warning me about my car's extended warranty, because I live in New York City and I do not own a car. So it's pretty easy for me to classify those as spam. And I think I know the answer to this, but just for the record:

22:09
If you get one of those high-pressure calls about an expiring warranty on something you actually own, a car, an appliance, whatever, are those safe to always just ignore?

Thomas Walsh
Yes. And please ignore them. Scammers love these, because almost everyone owns something that has a warranty. Legitimate companies, they're not going to cold call you about expiring coverage. You'll also see scam offers like these come through the mail, and they often appear like they were sent

22:39
by the original manufacturer. Or they often include specific details about the vehicle or product that you own to make it seem more legitimate. You can toss those in the trash as well. Unless you are aware of an expiring warranty and you are already thinking about extending it, at the very least, do some further research and ensure that it is a legitimate

23:06
company and what is actually being offered.

Amy Laburda
Makes sense. So let's shift gears a little bit here. And I'd like to talk about another area where I often encounter, you know, offers to help my peace of mind, which is travel insurance. I don't travel nearly as much as some of our colleagues do, but I'm still on the road probably four or five times a year between work and personal. And things I would say mostly go smoothly, but

23:32
I think we've all been there, where sometimes travel just, like, goes off the rails in an unpredictable way. As we're recording this, we're just a little past the government shutdown and obviously a lot of air travel was really snarled up by that. And so we're heading towards the holidays as well. A lot of those travels feel like high stakes. So, you know, as we've been talking about, emotion can really play in. On an emotional level, I definitely get the impulse to at least protect your wallet, even if you can't protect your own time.

24:01
But that said, let's dive into the sort of practical, financial planner side of it. What kind of travel protections are out there, and are they things that people should think about broadly before we dive into the specifics?

Thomas Walsh
OK, yeah. So there's really four main types of travel-related insurance. They include… There's trip disruption insurance, which covers travel issues related to delays, cancellations, and lost luggage.

24:29
There's rental car coverage, which usually covers collision damage on the vehicle. The third is travel medical insurance. And that one is important to consider when you're leaving the country. We'll get more into that, I'm sure. And then there's medical evacuation insurance, which is really adjacent to the travel medical insurance, but it specifically relates to covering the cost of medical transportation

24:59
to an adequate medical facility, should there not be one in the area that you're traveling in.

Amy Laburda
All right. We will dive deeper into all of these, but given that there are these different types, it sounds like we're already in more nuanced territory than we were with extended warranties. Is that fair to say?

Thomas Walsh
For sure. So unlike extended warranties, travel insurance is a bit more nuanced. And determining if it's worth purchasing will depend on factors like your destination, your current health coverage, and the cost of your trip.

25:28
But there are situations where it absolutely makes sense.

Amy Laburda
OK. So let's start first with trip disruption insurance, which you mentioned, because that's one I encounter a lot when you're buying non-refundable tickets for things. What sort of disruptions do these types of plans typically cover?

Thomas Walsh
So trip disruption insurance, it generally covers the unexpected problems that interrupt or derail your travel plans.

25:56
The specifics can vary a lot from plan to plan, but most policies include some combination of coverage related to trip cancellation, interruption or delays, and then lost or damaged baggage. So trip cancellation, which reimburses you for prepaid nonrefundable costs — things like flights, hotels, tours that you have booked. If you have to cancel your trip

26:24
for a covered reason, like a sudden illness or severe weather or a family emergency, that's when that trip cancellation can come into play. Trip interruption covers certain expenses if your trip is cut short and you need to return home early. This can include last-minute airfare or even the unused portion of your trip. You can get a portion of that reimbursed. Then trip delays

26:53
would include being stuck somewhere, like an airport, for a long time due to something like severe weather or mechanical issues with the plane. And that includes coverage of reasonable expenses while you're waiting. And then if you miss a connecting flight or a cruise departure due to a covered delay, the rebooking fees or the cost of alternative transportation is often covered here.

Amy Laburda 27:21
So it sounds like these can vary quite a lot in what they're meant to protect against. So does that mean that you need to sort of get really specific about what sort of protection you're looking for upfront when you're shopping for them?

Thomas Walsh
Certainly. These plans, they differ dramatically. So it's important to understand the specific details of the coverage that's being provided. One plan might reimburse you up to $500 for a delayed or lost bag, while another covers

27:49
$3,000 in addition to paying for essential purchases while you're waiting on your bag, if it was delayed. So yeah. And going back to that, for the baggage portion of the insurance, many plans do reimburse you if your checked bag is delayed, lost, or it arrives damaged. And then some policies also cover essential items that you have to buy while you're waiting for your luggage.

Amy Laburda
So given the difference in coverage, I imagine that

28:18
there's a range here, but how expensive is this sort of coverage? What should you be looking to pay relative to the cost of your trip?

Thomas Walsh
So most trip disruption or comprehensive travel insurance policies, they're typically going to cost about 5% to 10% of the total trip. But below five, I would say is on the lower end. Above 10 is on the higher end.

Amy Laburda
OK.

28:42
So you had mentioned in your intro international travel, which I think obviously jumps to mind for a lot of people. But are there any sort of broad categories of trips where either you can probably skip it or you should seriously consider this sort of insurance?

Thomas Walsh
Yeah. So you can likely skip this kind of insurance if you have fully refundable bookings, for instance, or you have a flexible travel schedule, where delays and things might not affect you too much.

29:12
Or even if you have enough savings to comfortably cover any unexpected travel hiccups, then you can usually skip this type of coverage. I would add that most people that are traveling domestically in the U.S., they can almost always skip this coverage as well. If an airline cancels your domestic flight, they're required to give you a refund or rebook you. So the insurance doesn't usually add much value there. Your regular health insurance

29:40
also applies anywhere within the country, which removes one of the bigger reasons people think they really need the extra coverage in the first place. And then if you can avoid checking a bag, if it's a domestic flight, then you get to ignore the baggage protection altogether. As for who might want to purchase trip disruption insurance: If you're planning a particularly expensive, nonrefundable trip, that's when it can make sense to

30:10
to sort of pause and weigh your options here. As a way to approach that, I like to compare the cost of a fully refundable airline ticket, for instance, with the cost of a cheaper nonrefundable fare. And then you add in the price of a travel insurance policy that you would tack on to the nonrefundable fare and look at that comparison. Sometimes the refundable ticket is actually the better deal.

30:39
So you also want to think about the strength of your emergency fund and whether you have other backup options. For example, using airline miles or points to rebook if something unexpected comes up. And maybe you're planning an expensive cruise, you're traversing the Atlantic in the middle of hurricane season. That could be a reason to take a closer look at coverage options as well. The last thing I'll add is

31:09
there is an option called “cancel for any reason” coverage. And that can be helpful if you're worried about something specific like a medical condition flaring up or going on that cruise during hurricane season. You just want to keep in mind with this that these policies usually only refund about 50 to 75% of your trip cost. And the terms can be pretty strict.

31:38
You just want to be clear on exactly what's covered, what's not, and then what documentation you would need if you ever had to actually file a claim.

Amy Laburda
For sure. Yeah, I imagine there's a spectrum for sure, but it's easy to have sort of, on either end where you're like, “Oh, I'm going to go visit my parents and stay with them. So like if I get delayed, kind of whatever.” Versus, “Oh, I really need to make this flight because,” as you mentioned, “I'm

32:01
catching a cruise and it leaves at a time and I have to be there.” There's higher and lower stakes involved for a lot of these kinds of trips that are, I imagine, fairly intuitive.

Thomas Walsh
So yeah, and then I'll also add, too, is to check your credit card protections in making that decision, which could lean towards skipping the coverage as well. You might be surprised, a lot of credit cards, they already include things like lost baggage reimbursement or some form of trip cancellation protection

32:31
as long as you use that card to book your travel.

Amy Laburda
Right.

Thomas Walsh
You just want to know exactly what your card covers. Some of these protection plans cover only the cardholder, for instance, while others might extend to your spouse, kids, or even additional family members. So just, it's worth checking out your card's benefits because there might be something available there.

Amy Laburda
That makes sense. So

32:56
moving on to one of the other types that you mentioned: I've actually had to purchase this one for myself, which is coverage for a rental car. So let's start sort of big picture. What are you actually paying for when you buy this sort of coverage at the rental car counter or the virtual counter if you book it online?

Thomas Walsh
So at its core, you're really paying for collision damage coverage on the rental car. Sometimes you'll see it bundled with liability or

33:25
personal accident coverage too. The vehicle is, of course, already insured by the rental company. So in a sense, you're really paying to keep them from holding you personally liable for any damages to the vehicle.

Amy Laburda
Gotcha. So I mentioned I've bought this before, but I do want to make clear I'm in kind of an unusual situation in that I am a person with a driver's license who does not own a car, as I previously mentioned. So I'm,

33:52
as a result, not already carrying auto insurance, since I don't have a car for it, which means that I'm not protected by that. Do people who are already paying for auto insurance on their own car, which I imagine is the vast majority of rental car customers, need to pay for this protection as well, or are they already taken care of?

Thomas Walsh
They're likely already taken care of. Your own auto insurance will typically cover rental cars as well. So you rarely need to purchase the rental company's policy.

34:22
You'll just want to make sure to check if your coverage extends to renting a car, for instance, in a foreign country, since many policies do limit their coverage abroad.

Amy Laburda
I also want to flag that this is one [place], as you mentioned in our last section, that credit cards can unexpectedly be helpful. I know one of my cards does offer some extended rental car coverage as a perk. And I just wanted to know, is that another common one people should be looking for? Or do I just have a

34:51
a weird, one-off card?

Thomas Walsh
No, that definitely is, it is relatively common. You'll see credit card companies, they offer a secondary or even some offer a primary rental coverage as a perk. And that can make it easier for declining that policy at the rental company. So depending on the card, there are limitations, again, when you rent in a foreign country. So just ensure that your coverage applies to this specific situation you're facing.

Amy Laburda
Yeah.

35:21
So I only need to rent a car probably once every few years. It's not super common. But say someone like me was in a situation where they needed to rent more often and didn't have a car of their own. Is there any other option for coverage with rental cars, or are you kind of just stuck paying Hertz or Enterprise or whoever you're renting from?

Thomas Walsh
So for frequent travelers, they do have standalone rental car insurance providers that offer annual policies.

35:49
And those can be far cheaper than buying coverage every time you travel, especially if you're doing so often.

Amy Laburda
All right. So we've talked about trip disruption. We've talked about rental cars. Let's talk about health coverage for a minute. Obviously, you flagged that international travel is different from domestic. Why is this something you need to think about on an international trip, expanding your health coverage?

Thomas Walsh
So anyone that's traveling outside of the United States,

36:18
even for a short trip, I would recommend they strongly consider travel medical insurance, because most U.S. health plans, and that includes Medicare and Medicaid, they offer little to no coverage abroad. And emergency care or evacuation overseas, it can get extremely expensive. So it's especially important for travelers who are going to remote areas or places that

36:48
have limited medical infrastructure, or locations where evacuation might be necessary. Since medical evacuation costs… They can cost anywhere from a few thousand dollars to north of $100K. But some larger employers or global companies, they do offer limited international coverage through their plans. It's not guaranteed and the benefits can vary widely,

37:17
again. And it almost never includes the costly medical evacuation.

Amy Laburda
Right.

Thomas Walsh
So again, it's always worth checking your specific policy before traveling and see if there's any gaps that you need to fill.

Amy Laburda
Yeah. And it sounds like this is a situation, too, where the specifics of your trip are going to matter a lot. Like, if you're spending five days in London, you're going to need a very different amount of coverage than if you're going caving in, you know,

37:46
rural South America somewhere. Because medical evacuation sounds like that… that's a thing that can really get pricey, if you're somewhere that's not accessible by normal means of transportation. How do you weigh the cost versus risks for this sort of thing? You know, for a short trip abroad, some people are like, oh, this is a lot of hassle. But I think, as we were talking about earlier in the episode, the upfront

38:13
costs versus the risk of it getting very expensive later. Sounds like this is a situation where it tip more towards the risk of getting very expensive later.

Thomas Walsh
Yeah. So if you're, you know, you're weighing the costs versus the risk for purchasing a policy, it helps to weigh the cost of the policy against the potential financial and health risks. And in some countries, emergency care can be extremely expensive, especially if it involves a private hospital,

38:42
where even a short hospital stay can run in the tens of thousands of dollars. You also want to consider your current health coverage and whether or not it applies to your travel destinations. And then when evaluating the cost… Travel medical insurance, it's typically around 2 to 10% of the total trip cost. That depends on your age, where you're going and coverage limits

39:13
that are involved. They should also weigh the risk of the activities, like you mentioned going caving, that you're taking in on your trip. Activities like skiing, scuba diving, rock climbing, and caving, I'm sure that they are considered high-risk activities. And that lends toward purchasing additional coverage. Although some policies, they do specifically exclude injuries that are related to high-risk activities.

39:42
So again, it's important to really understand exactly what you're getting with the policy you're looking at. And then I would say the final thing is to just incorporate into that decision how much you value the peace of mind that can come with a medical policy like that.

Amy Laburda
Yeah. On a similar evaluating the policy note, you mentioned earlier that travel insurance more generally can sometimes include a health coverage component.

40:08
Is that just a thing that it varies and you have to just check what each individual plan says, or is there kind of a baseline that you can expect?

Thomas Walsh
Yeah, definitely. Look at the details, but you'll mostly see medical insurance plans rolled up with travel disruption insurance in a comprehensive travel insurance policy. Oftentimes, travel disruption covers some portion of your trip costs should you cancel due to a medical issue.

40:38
While medical trip insurance is… more so covers medical emergencies during your trip. So, yes, you can… Usually you'll find them together in a more comprehensive travel insurance plan.

Amy Laburda
OK, so this conversation has been extremely helpful to me personally, but I suspect that these kinds of discussions on their face may strike some people as sort of too small to bring to their financial adviser or a professional. But especially on the travel side, it seems like we're,

41:08
you know, looking at a lot of different options, a lot of different details. Do you ever actually talk to clients about these kind of sort of nitty gritty choices? And if you haven't, would you if someone brought this kind of question to you? Or is this a do your own research sort of topic?

Thomas Walsh
I do speak with clients on this and I'm always happy to. You know, people often do feel these decisions are too small to ask about. But they really do all add up. And if it affects your, you know, your wallet,

41:37
I'd say, or your stress levels, it's worth talking through with a financial planner.

Amy Laburda
Makes sense. So returning listeners know I like to hand things to my guests before I wrap up the conversation. So Thomas, do you have any final thoughts or things we didn't touch on, either about extended warranties or travel insurance or anything else that's come up today?

Thomas Walsh
I guess I would bring it all down to.. My big takeaway being that most extended warranties really

42:07
aren't worth it, but travel insurance sometimes is. So if you have a good emergency fund, you have strong credit card protections, and you understand what's already covered under a manufacturer's warranty, you can confidently skip most service plans. Travel insurance is a little different story. For big trips or international travel, a small premium can provide you with real protection and peace of mind.

Amy Laburda 42:36
Great. Well, thanks so much for sitting down with me today, Thomas. I think this was really helpful for putting all those add-on purchases in context. And I hope our listeners will also feel a little more confident in making those decisions going forward.

Thomas Walsh
Yeah, thanks for having me, Amy.

Amy Laburda 42:53
“Something Personal” is a production of Palisades Hudson Financial Group, a financial planning and investment firm headquartered in South Florida. Our other offices are in Atlanta; Austin; the Portland, Oregon metropolitan area; and the New York City metro area. “Something Personal” is hosted by me: Amy Laburda. Our producers are Ali Elkin and Joseph Ranghelli. Joseph Ranghelli is also our director, editor and mixer. If you enjoyed this podcast, please take a moment to rate and review us wherever you're listening.

43:23
It's a simple way to help new listeners find the show, and we really do appreciate it. Thank you.