Clients who bought travel insurance for a Spirit Airlines trip this spring may have assumed they were covered when the carrier stopped flying in May. Many were not, and the reason matters for any advisor booking air on a financially shaky airline: insurers can treat a carrier’s money troubles as a known risk long before the planes are grounded.
Travel insurance exists to cover the unforeseen. According to travel insurance marketplace Squaremouth, many insurers regarded Spirit’s finances as foreseeable from the time of its first bankruptcy filing in November 2024, roughly 18 months before the shutdown. Travelers who purchased policies after that point likely had little or no financial default protection to fall back on.
Financial default coverage can reimburse prepaid, nonrefundable trip costs when an airline or other supplier goes out of business because of insolvency. Having the benefit listed in a policy does not settle the question. Eligibility turns on the insurer’s own rules, whether the specific airline qualifies, and when the policy was bought.
Squaremouth is raising the issue now because of JetBlue, which continues to operate but is drawing fresh attention to its balance sheet. Third-quarter results at the carrier showed a $257 million net loss. Chief executive Joanna Geraghty has countered that bond-market worries are out of step with the airline’s results, and management is standing by its 2027 target for operating profitability.
Chrissy Valdez, senior director of operations at Squaremouth, recommends three checks for anyone booking JetBlue or another carrier under similar scrutiny. First, buy early, because coverage options can narrow or disappear once an airline’s problems are public knowledge. Second, call the insurer before purchasing and ask directly whether the airline’s current situation affects default eligibility. Third, read the timing rules: some policies must be bought within 10 to 21 days of the first trip deposit to qualify, and some only pay if the default happens at least 14 to 30 days after the policy takes effect.
For advisors, all of this moves the insurance conversation to the front of the booking. The deposit date starts the eligibility clock, and as Spirit showed, an insurer may stop covering an airline well before that airline stops selling tickets.
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