On-Demand Protection: The Future of Usage-Based Travel Insurance

Paying for insurance feels bad when you’re sitting idle. On-demand insurtech is changing the future of insurance, letting you freely turn travel insurance on like a light switch and reduce overall insurance costs.

Let’s go over how usage-based travel insurance works, who benefits most from it, and what limitations it has.

The Evolution of Travel Insurance Models

Traditional Models

Travel insurance has existed for over 150 years, entering the mainstream in the past 50 years as travel itself has become increasingly accessible. The two main types of travel insurance have been:

Single-trip policies: A fixed duration policy where only a single journey is covered within the set time frame.

Annual policies: Multi-trip plans will cover multiple trips throughout a year, with set limits per trip.

The downside to these fixed duration policies is the lack of flexibility. What if you need to change your coverage abruptly? What if there’s a lot of time to be spent resting indoors instead of touring the area? The rigid pricing regardless of actual days or locations traveled can be frustrating for travelers who have unique needs.

Modern Changes in Travel

Travel insurance needs to be more flexible nowadays as travel types and reasons have changed significantly. Spontaneous and hybrid travel have risen in popularity. You may have heard of travel insurance for digital nomads and last chance tourism to the Great Barrier Reef and other areas threatened by climate changes. Bleisure travel combines business travel with leisure, helping travelers save time and money.

With all the trends and changes, consumer demand for personalized, on-demand coverage has skyrocketed. Technology is also improving to meet that demand–we now have mobile apps, geolocation tracking, API-linked bookings, telematics insurance, and more.

What Is Usage-Based Travel Insurance?

Pay-As-You-Go

Usage-based insurance is meant to provide pay-as-you-go coverage. It is most popular in auto insurance, but travel insurance companies have begun to pick up this technology as well.

The travel insurance coverage will be triggered by travel activity and/or location. So if you’re sitting home, you won’t need to pay. But if you go hiking in Japan next week, then the insurance activates and the costs start accruing.

Geolocation Toggle System

Geolocation systems that insurance companies use for usage-based insurance can detect the start and stops of travel. They’re based on GPS, SIM swaps, and itinerary syncs. Multiple sensor systems may be used in tandem for better accuracy.

Payment Models

Since pay-as-you-go is the core concept of usage-based insurance, you are only charged for times when you’re actually traveling. For example, you may be charged $4 a day while on the move.

Region-based pricing tiers are also used by some insurers. The insurer will look at the risk profile of you and your destination. The “safer” an area in terms of risk and healthcare costs, the lower the travel insurance premium. For example, Canada is considered a low-risk region, making the price per day cheaper there. USA and Japan have more expensive healthcare, making them higher risk and more expensive for every day.

Key Features and Benefits

Cost Efficiency

On-demand travel insurance is best for frequent travelers with short and/or irregular travel patterns. They will only need to pay for coverage on days they step out to travel.

Hyper-Customization

It’s nice to be able to customize your travel insurance policy according to your usage needs, risks, and other variables. You can also upgrade the policy with add-ons, such as adventure sports coverage or remote area coverage.

Risk-based premiums

The cost of usage-based travel insurance is tied to the traveler’s real-time location or trip duration, depending on the policy.

Ease of Activation

It’s easy to activate your usage-based travel insurance by toggling the coverage on in your app. Auto-activation also makes it convenient to have coverage when you actually need it by looking at your calendar or flight data.

No Wasted Coverage

With usage-based travel insurance, travelers can avoid paying for idle days when they’re resting at home. This makes it potentially much better than annual, multi-trip insurance policies in terms of cost effectiveness.

Use Cases and Target Travelers

Frequent Short-Trip Travelers

Travelers who expect to take a lot of short trips in a year can benefit from on-demand protection. That way even if you only take one or two trips, you can still get cost-efficient travel insurance.

Digital Nomads

If you work remotely and are leveraging that freedom to travel, especially across borders, flexible travel insurance may be a priority. On demand, usage-based insurance could be exactly the personalized travel insurance policy you need. That way if you end up sticking in one place for a long time, you won’t be wasting extra money on coverage. You can activate coverage as needed.

Visiting Family Internationally

If you plan on visiting multiple international family members, it could be a good idea to obtain on demand travel insurance. Many people decide to spend as much as they can with family, resulting in unpredictable coverage needs.

Students or Exchange Participants with Gap Periods

If you’re studying internationally, usage-based travel insurance could be useful. It lets you save money when you don’t need the insurance coverage, which is perfect for students who want to be frugal.

Data, Privacy & Geolocation Ethics

Data privacy is a serious concern for many people, and if you sign up for a geolocation-dependent plan, then it’s important to know what can happen to your data.

Data Collection: Is It Safe?

Location, device use, and travel behavior are detected and saved by the travel insurance company’s apps. And these location details can be very detailed.

It’s scary to have your personal details given to people you don’t know. Travel insurance companies know the best practice is to let you opt into services and data collection. That way you see and acknowledge how your data is stored and used.

Risks and Safeguards

Security protocols and anonymization strategies are great ways to disconnect your identity from anyone who might steal the location data.

Always read policies carefully before buying new, innovative insurance with telematics or geotracking. Unknown companies that are shady shouldn’t be trusted.

Limitations and Considerations

Usage-based travel insurance is still evolving and is not suitable for every traveler. Here are notable disadvantages and limitations to usage-based travel insurance.

Spotty Coverage Activation Risks

Like how you can’t get a GPS signal on your phone everywhere, the travel insurance’s GPS could be spotty. Dead zones and forgotten toggles mean gaps in coverage, which can lead to rejected claims. This is a great risk in particular for travelers heading to remote regions and/or backpacking.

In these cases, travel insurance for remote regions could be more suitable for you.

Of course, many regions do not have ubiquitous smartphones and internet connection is spotty. For example, in more price aware countries of Asia and Latin America, it might not make sense to purchase usage-based travel insurance. Traditional insurance would make it much easier to file a claim and obtain reimbursements, since you wouldn’t be able to safely rely on the geolocation data.

Unclear Definitions of “Travel Start”

A usage-based travel insurance policy may have unclear definitions about when coverage is active for trips. Disputing claim rejections could be an issue as a result.

Higher Daily Cost for Riskier Destinations

Since usage-based insurance is tailored to live details about your trip, the cost can be greatly affected by where you are. If you’re in an area with high risks, you may end up paying far more for travel insurance than if you had just bought a regular travel insurance policy for your trip.

Dependence on Tech Compatibility

Insurance companies assume travelers have smartphones with geolocation capabilities when designing usage-based insurance. This means that if you don’t have the necessary tech with you while traveling, you won’t be able to sync with the app or receive proper coverage. It can also pose an issue if you lose or break your smartphone.

Market Landscape and Leading Providers

Insurtech Startups Pioneering the Model

Several newer travel insurance companies have embraced advanced location tracking and risk assessment frameworks to offer travel insurance.

More and more companies are looking forward to the expansion of on-demand insurance technology. ITC Vegas, as presented by McKinsey & Company, will delve into how embedded, on demand travel insurance will influence the world of insurance. The growth potential is great for both companies and consumers—so long as the models continue to improve at assessing risks and premiums.

What companies offer geolocation-driven policies

Fintech Global shares the latest news on what companies have adopted on demand travel insurance policies. Here are some of the companies with usage-based and/or on-demand travel insurance:

• SOVENTURE
• TravelPerk
• Battleface
• Arch Insurance

Major travel insurance companies appear to still be considering whether to adopt it as new policy types. Devising a secure and accurate smartphone app is a financial investment and not all insurance companies are interested yet.

Compare Usage-Based vs. Traditional Insurance

Traditional insurance policies let you customize coverage based on what add-ons and endorsements you purchase. It’s a one time payment so you have to choose what coverage you want at the start.

Usage-based insurance feels better to buy because if you end up not going on long or extra trips, you won’t need to pay. You can pay as you go, on demand.

Future Outlook: Where Is This Headed?

Integration with Global eSIMs & Digital Nomad Platforms

Global eSIMs are a convenient way to buy data for those traveling around the world. Some companies even offer global eSIMs for over 200 countries, which is incredible flexibility for travelers planning to tour the world. Global eSIMs and travel insurance companies may partner together to offer the best usage-based insurance policies.

Digital nomad platforms are more popular than people think. The Digital Nomad Subreddit has over 2 million subscribers as of 2025, and the number is constantly increasing. Remote work makes traveling a great possibility for those who enjoy exploring the world through a nomadic, independent lifestyle.

AI-Powered Dynamic Pricing Based on Live Conditions

AI powered dynamic pricing has been a controversial adaptation in numerous sectors. Customers all hope that as the technology advances, the dynamic pricing will result in more reasonable and affordable premiums for everyone depending on their live risks.

Smart Contracts & Parametric Triggers for Instant Payouts

Filing a claim and waiting for a response as a travel insurance company reviews your details can be frustrating and time-consuming. With the help of technological advances, smart contracts and parametric triggers will likely allow for instant payouts.

Expansion to Group, Family, and Corporate Travel Models

Usage-based travel insurance is primarily for individual travelers. If it becomes a more popular choice going forward, travel insurance companies are sure to expand their policies so that they can cover groups, families, and businesses.

Conclusion

Usage-based insurance that activates as you travel means you don’t need to waste money on travel insurance when you’re idle at home. However, this insurtech requires a smartphone’s geolocation services and is not ideal for travelers with preplanned or high-risk itineraries.

Assess how much flexibility in travel insurance you need for your trip. If you’re a digital nomad or frequent traveler with unpredictable destinations, try a usage-based plan today for adaptable coverage.