In April 2024, the US Department of Transportation (DOT) finalised a long-anticipated rule to strengthen airline refund rights for American travellers. The regulation – hailed as a major win for consumer transparency and accountability – requires US airlines to automatically issue cash refunds in specific circumstances, including cancellations, significant delays, undelivered baggage, and failure to provide paid ancillary services.

This marks a meaningful shift from the pre-2024 status quo, when refund policies varied widely by carrier and often placed the burden of action squarely on the passenger. As the first full year under these new regulations continues to unfold, one point remains clear from the US travel insurance industry: these rules, while a step forward, are not a replacement for travel insurance.

What the final rule actually requires

For the first time, the DOT rule sets federal standards defining a ‘significant change’ to a flight and codifies refund obligations. Passengers are now entitled to a full refund if they choose not to travel after a:

• Flight is cancelled or significantly changed, including delays of more than three hours (domestic) or six hours (international)

• Departure or arrival occurs at a different airport

• Number of connections increases

• Traveller is downgraded to a lower class of service

• Flight switches to a different aircraft that reduces accessibility for passengers with disabilities.

The rule also guarantees automatic refunds for undelivered checked baggage – if it’s not returned within 12 hours after a domestic flight or 15–30 hours for international trips (depending on flight length). Additionally, if a purchased service such as Wi-Fi or seat selection is not provided, the passenger is owed a refund for that fee.

Crucially, the new rule removes several barriers to claiming these refunds. Airlines must now issue automatic refunds (without a consumer request), process them promptly (within seven business days for credit card payments), return them in the original form of payment, and include all fees and taxes.

This rule addresses long-standing refund friction – especially during mass cancellations, as seen during the Covid-19 pandemic – but it does not entitle travellers to compensation for the broader financial consequences of delays or cancellations, such as missed hotel nights or rebooking on another airline.

Why travel insurance remains critical

Despite the progress, USTIA urges travellers not to confuse ‘automatic refund’ with ‘comprehensive coverage’. Travel insurance continues to fill critical gaps, especially for trip elements outside the airline’s legal or financial responsibility.

While the airline must refund a disrupted flight or associated fees, the rule does not cover:

• Prepaid hotels or tours missed due to delays or cancellations

• New flights booked at higher prices to replace disrupted ones

• Meals, lodging, or transportation during an unplanned overnight stay

• Medical emergencies while travelling

• Trip cancellations or interruptions due to personal emergencies (e.g. illness, injury, family loss).

Many of these are significant, high-cost elements of travel that remain uncovered under the DOT regulation. Without insurance, travellers are left to absorb these expenses on their own – even if the original flight disruption triggered the financial loss.

Additionally, while the rule mandates refunds for baggage fees when delivery is significantly delayed, it does not compensate travellers for essentials like clothing, toiletries, or medications they may need to purchase in the meantime. Travel insurance, by contrast, typically reimburses for these types of out-of-pocket expenses.

Airline refund does not equal full trip protection

Another key distinction is that the refund rule applies only to the flight segment affected. If a traveller is on a multi-leg journey and the final leg is cancelled or delayed, the refund only covers that last flight. The traveller may still be responsible for rebooking alternative transportation and covering missed reservations at the destination – costs that a travel insurance policy could help recover.

Even when travellers accept the alternative transportation offered by an airline, they may not be eligible for a refund under the rule. In those cases, they’ve technically ‘used’ the service – even if the rerouting results in a missed cruise departure, lost prepaid excursion, or hotel night. This is particularly relevant for US travellers heading to international destinations, where coordination between airlines, cruise lines, and tour operators can be fragmented. If a domestic leg is disrupted and results in a missed connection to an international carrier, airline refund policies offer little help for recouping the lost value of the onward journey or accommodation.

For the first time, the DOT rule sets federal standards defining a ‘significant change’ to a flight and codifies refund obligations

Travel insurance also includes trip delay benefits, which can reimburse for meals, hotel stays, and ground transportation while the traveller waits for a new flight. These benefits often kick in after a covered delay (typically over six hours), helping travellers stay comfortable and cover essential expenses that would otherwise come out of pocket.

A common misunderstanding

USTIA is concerned that growing awareness of the airline refund rule may inadvertently create a false sense of security among travellers. As the language of ‘automatic refunds’ circulates widely in media and advertising, many may assume the new regulation offers protection akin to travel insurance – which it does not.

Travel insurance can protect against both supplier failures and personal emergencies. For instance, if a traveller must cancel a trip due to illness, injury, or a family emergency, a comprehensive policy can reimburse non-refundable expenses. Airlines, even under the new rule, have no obligation to refund tickets in these situations unless the traveller booked a refundable fare.

This distinction is also important when considering airline-issued credits. While the DOT rule prevents airlines from issuing vouchers by default, travellers must actively choose a refund to receive cash. If a consumer accepts a credit or rebooking offer, their eligibility for reimbursement through insurance may be reduced or voided, depending on the policy terms.

More rules may be coming – but gaps remain

While the refund regulation is a milestone, it’s not the end of US reform efforts. The DOT is also exploring proposals that would mandate compensation and amenities (like hotel stays and meals) when airlines cause significant delays. But even these potential rules would still apply only to airline-caused disruptions – and would not address personal, medical, or destination-based reasons for trip changes or cancellations.

A key distinction is that the refund rule applies only to the flight segment affected

The automatic refund rule is only enforceable within the scope of US-based carriers and operations. Flights on international airlines or routes that begin or end outside the US may not fall under the regulation’s purview. For globally minded American travellers, travel insurance remains one of the only ways to ensure consistent, comprehensive protection across borders.

The case for layered protection

In 2025, US travellers are navigating one of the busiest and most complex travel landscapes in recent history. Weather events are growing more frequent, airline staffing issues continue to affect operations, and international tensions periodically shift travel advisories and border policies.

Travel insurance complements the new refund regulations by offering layered, real-world protection before a trip begins and while a traveller is en route. Travellers can offset the risk of major out-of-pocket losses, gain support in emergencies, and access assistance services for everything from lost passports to overseas medical care.

USTIA supports continued improvements in passenger rights and applauds efforts to simplify airline refunds. But for travellers navigating multi-leg or international trips, a standalone travel insurance policy remains essential for managing risk and covering the kinds of disruptions airlines don’t address.