One type of insurance protects your finances, another protects your health while you are travelling and the third helps you get home in the case of a medical emergency.

Over the years, hundreds of thousands of travellers have been stuck, distressed, sick or injured due to things they never imagined would happen to them. And those “things” seem to be happening with increasing frequency.

Think about the volcanic ash clouds that halted air travel in Europe twice in the last 18 months, then in South America and Australia in June; the historic earthquake in Japan that marooned travellers in March and forced the cancellation of thousands of trips; the abrupt start of political violence across the Arab world this spring that forced visitors to evacuate quickly; the severe US snowstorms that snarled travel plans during the peak 2010 to 2011 winter holiday season.

On a smaller scale, there are a multitude of events — a sick family member, a big project at work, or the loss of a job — that can force last minute cancellations or adjustments. There are also car crashes, heart attacks, broken bones and other debilitating injuries that happen to travellers when they are far away from home.

So what happened to all these distressed travellers? It is likely the ones who had the foresight to purchase travel insurance came out farther ahead than those who did not.

The decision to purchase or pass on travel insurance is complex. For some people, on certain types of trips, it makes perfect sense. For others, it might be an unnecessary extra cost. So knowing about the three broad categories of travel insurance is a good first step: one protects your finances, another protects your health while you are travelling and the third helps you get home in the case of a medical emergency.

Trip cancellation coverage
There are a wide variety of insurance plans designed to protect travellers from taking a financial hit because of trip cancellation or interruption.  

A trip cancellation policy protects travellers from losses if they are unable to travel. For example, a couple buys airline tickets and makes a large deposit for a Mediterranean cruise, but at the last minute, one of them falls ill, forcing a cancellation. In this case, travel insurance would refund the cost of the entire vacation. If the couple did not have insurance, they would only receive a percentage of the cruise deposit back (if any), and airline tickets would likely be forfeited or assessed a hefty cancellation fee. The cost of trip cancellation policies is typically about 5% of the total trip cost.

Trip interruption plans protect travellers who get stuck once their trip is underway. For example, Susan Godfrey of Morristown, New Jersey, was recently returning home from a trip to Alaska, which required a stop and change of planes in Seattle. But her flight from Anchorage to Seattle was severely delayed, forcing her to spend the night in Seattle before continuing on to New Jersey the next day.  

Since she had purchased a policy that included trip interruption, she called the insurance agency, which booked and paid for an overnight stay at an airport hotel.

“Arriving late in Seattle, we went straight to the hotel. We got our keys and were checked in as other people from our flight started arriving. However, there were no rooms available!” she said. “So we had our room, guaranteed, and they were out of luck. We were really happy and pleased with the service.”

Because trip cancellation or interruption policies can be filled with exclusions and loopholes, (illnesses, for example, can be considered pre-existing conditions), it is increasingly popular to purchase “cancel for any reason” policies that cover losses if the holder decides not to take a trip for any reason. This includes cancelling a trip due to fear of political or civil unrest, as we have seen in the Middle East.

These policies are more expensive, typically running at around 10% of the trip cost (versus 4% to 8% for standard policies), but they provide the most protection. Travel suppliers like airlines, tour companies or cruise lines act as brokers for insurance companies and typically sell these policies only when you purchase tickets or make deposits.

Medical coverage
Health-related travel insurance provides coverage or assistance if you become sick, injured or disabled overseas. It covers medical expenses you might incur at hospitals or clinics when away from your national or private health care system.

“Travellers from countries with national or socialized health plans buy travel health insurance as a matter of course when travelling outside their home countries,” said Roy Berger, CEO of MedJet Assist, a medical evacuation provider in Birmingham, Alabama. “That’s because their national health systems typically cover them when they are in their own countries only — additional coverage is necessary when travelling abroad.”

For Americans travelling abroad, most major US health plans cover costs for emergency treatment only. Basic Medicare (a government health care plan for senior citizens) does not provide coverage outside the US, but many Medicare supplement programs do.

Before you depart, contact your insurance provider and ask if you are covered when travelling abroad. Get specific -- ask about emergency treatment, hospitalization, the possibility of long-term care -- and determine what limits or exclusions apply. Regardless of where you are from, if treated for an emergency in another country, keep receipts for your medical expenses for reimbursement you when you return.

Travel agencies, banks and credit card providers frequently act as insurance brokers and can offer advice on plan specifics. The cost of medical insurance varies widely depending in the age and physical condition of the traveller, duration of the trip and destinations.

Infrequent travellers will get the best prices on policies that cover a single trip only. Frequent travellers should purchase annual plans that cover multiple trips.

Evacuation/repatriation assistance:
Another type of health-related insurance covers the cost of medical evacuation, which can reach into the hundreds of thousands of dollars. If you are injured or become severely ill abroad, this type of policy will pay for the high cost of taking an air ambulance back to your home country, or to a nearby country with better health care than the one you are in. Single trip policies typically run in the $100 range; annual subscriptions cost approximately $300.

To shop around for a travel insurance policy that suits you best, talk to a travel agent or see online sites such as insuremytrip.com, oncallinternational.com, squaremouth.com or travelinsurancereview.net.

Chris McGinnis is the business travel columnist for BBC Travel