Vacations can cost thousands of dollars (or more), and the last thing you want to do is make a trip even more expensive. But just the way you insure your house and car, you might want to consider insuring your trip. Travel insurance helps protect you from financial losses if you're forced to cancel, delay or interrupt your holiday (or business trip), by reimbursing you for nonrefundable travel expenses, such as airfare, hotel rooms and tours or cruises. Some policies also cover medical emergencies, damage to personal property and even death.

According to the Insurance Information Institute – an industry organization dedicated to improving the public's understanding of insurance – five types of travel insurance include:

1. Trip Cancellation – reimburses you for prepaid, nonrefundable travel expenses if you have to cancel the trip due to an illness, a death in the family or another mishap listed in the policy. Some policies offer cancel for any reason coverage for an additional cost. This type of policy also kicks in if your cruise line or tour operator goes out of business.

2. Trip Interruption – reimburses you for the unused portion of your vacation if you or one of your immediate family members (whether traveling with you or back home) becomes seriously ill or dies during the trip, or if – due to any other mishap listed in the policy – you are forced to return home earlier than planned.

3. Baggage Insurance/Personal Effects Coverage – provides coverage if your belongings are lost, stolen or damaged during your trip, including while you travel to and from your destination.

4. Emergency Medical Assistance – covers you if you need to be airlifted to a medical facility because of an accident or sudden illness, if you are sick or injured and have to spend an extended time in a foreign hospital, or if you need to be flown home to receive proper care – something known as a medical evacuation.

5. Accidental Death – provides a variety of coverage if you or a family member traveling with you dies during the trip.

Travel insurance is frequently purchased as a package that includes several different types of coverage. Many travel insurance plans sold in the U.S. also include 24/7 emergency travel services, such as replacing lost passports, cash wire assistance and rebooking canceled flights.

Travel insurance offers good protection – but some policies may duplicate coverage that you already have, or provide coverage for costs that would have been refundable anyway. Before buying the most comprehensive travel insurance package out there, consider your actual needs:

Trip cancellation is a good idea any time you're going to pay more upfront than you are comfortable losing. To help you decide if you need coverage, figure out how much money is actually at risk. If you put down $2,000 for a package tour, for example, and the tour's cancellation policy says you'll get back everything but $100 if you cancel, you're really only insuring that $100. Or, if you purchase a refundable airline ticket, there's no need to insure it. Make sure you insure only the costs that would not be recoverable any other way.

Also, make sure you understand which reasons for cancelling the trip are covered, and make sure that they match your needs and concerns. A policy might cover you if you cancel your trip due to illness or injury, but if you're more concerned with missing the trip because of work or because you're uneasy about your destination, you're probably better off with a cancel for any reason policy.

Emergency medical may or not be redundant. Most health insurance companies will pay customary and reasonable hospital costs if you become sick or injured while traveling abroad, but very few will pay for a medical evacuation. Note that Medicare doesn't cover any expenses outside the U.S. Before your trip, check with your insurer to find out what's covered, and what's not, and plan accordingly. Also read Is My Health Insurance Good Abroad?

Accidental death may not be necessary if you already have a life insurance policy in place. That being said, any benefits paid by your travel insurance coverage may be in addition to those paid by your life insurance policy, thus leaving more money to your beneficiaries. You might also consider a Hazardous Activity rider that provides additional coverage if your death is caused by a sport or activity not typically covered by travel insurance.

Baggage and personal belongings is a tempting one, since possessions getting lost, stolen or damaged is possibly the most common problem a traveler is likely to face. Keep in mind, however, that many travel insurance policies pay for belongings only after you've made every other claim available to you – which means you might not need some of the minor coverage. Your homeowners or renter's insurance may well cover mishaps to your things wherever they happen, and airlines and cruise lines are generally responsible for loss and damage to your baggage during transport. Plus, your credit card may provide automatic protection for things like delays and baggage, if you've used it to make deposits or charge other trip-related expenses. (See The Best Credit Cards for Travel Insurance.)

When you are planning an expensive trip, you can cross your fingers and hope for the best, or protect your investment with travel insurance. Travel insurance premiums are based on the type of coverage, your age and the cost of your trip; standard policies cost about 5% to 7% of the trip's cost. Before going out and buying the most comprehensive policy you can find, however, look into what's included in your existing policies: health insurance, homeowners/renter's, life insurance. Don't overlook those credit card benefits. Also, find out which costs are recoverable outside of travel insurance (e.g., refundable airline tickets). That way, you can avoid overlapping coverage and only pay for the protection you actually need.

In general, you should avoid buying travel insurance from a tour operator or cruise line (if the company folds, you'll have a worthless policy), and steer away from travel agents, who might sell the policy that earns them the highest commission – instead of the one that's best for you. It's usually best to purchase travel insurance through an online broker (such as InsureMyTrip), which offers coverage from a variety of carriers. Before you make a purchase, speak with a sales rep, ask for a sample copy of the policy (and read it), making sure it offers all the protections you need. If you're not sure something is covered, ask the rep to show you the specific language in the policy that proves it is. It's bad enough when a journey goes awry; discovering that your loss is disallowed would be adding insult to injury.