Having just returned from a short but busy visit to Florida, I can understand why some American expats may run into trouble with Europe's rather strict rules on cancellation.

Yes, some of the larger chain hotels in Europe follow a similarly relaxed cancellation policy. But they are the exception rather than the rule. If you are planning to book a vacation in Europe, you have to allow for the possibility of charges if you cancel a confirmed booking.

Why hotels charge for cancellations

First, the hotels many expats love to book are not in busy areas where there is a lot of "off-the-street" customers. If you don't show, or if you leave earlier than planned, chances are the hotel won't be able to resell the room. That can be quite a financial blow for a small, family-run hotel.

Second, hotel managers impose cancellation charges to discourage the public from holding bookings up to the last minute in case something better comes along. "No show" - or failing to show up for a booking - is a big problem that affects not just hotels, but airlines and restaurants, too.

Cancellation penalties today are not just limited to hotel reservations. Practically every travel brochure on the market talks about cancellation costs in the fine print. And Dutch tour operators have some the strictest cancellation terms around.

Once you've accepted the fact the cancellation charges are common in the European travel industry, you need to ask up front what the fees would be for the travel you are booking. Then you can decide whether you want to book under those terms. Always ask to see the terms and conditions of the company with whom you are booking.

Why insurance is the best policy

The good news is that you can cover yourself against the financial consequences of enforced cancellation with a cancellation insurance policy. Just like car insurance, home insurance or health insurance, cancellation insurance protects you against the 'unexpected'. So if you have to cancel, you can claim the costs of cancellation against the policy.

The cause of cancellation has to be 'involuntary', or beyond your control. The fact that you just don't feel like going any more is considered voluntary cancellation and you won't get paid. Nor will you get paid if your company tells you at the last minute that you have to attend an important business meeting. That is also considered voluntary cancellation.

"Involuntary" cancellation may cover such circumstances as:

• death, illness or injury of one of the party travelling or a first- or second-grade family member
• involuntary termination of a labour contract resulting in unemployment
• pregnancy
• divorce or break-up of a registered relationship
• re-sitting an exam
• buying a house, or unexpected changes to a rental agreement

Prices of cancellation policies vary between insurers, but you can figure on a premium of between four and five per cent of the total cost of travel, plus seven per cent tax over the premium. For example, you book a holiday that costs EUR 2000. Including tax, a cancellation policy for your trip will cost about EUR 100.

Is cancellation insurance worth it?

It all comes down to how comfortable you are with risk and the unknown. When you consider that cancellation can cost you up to 100 per cent of the cost of your holiday, a cancellation policy is a small price to pay for peace of mind. If you are travelling with young children in particular, then cancellation insurance and a good 'all-round' travel insurance are a must.

If you do need to make a claim, then buying the peace of mind of a cancellation policy was money well spent.

Charles Stuart is managing director of American Travel Center in the Netherlands

Subject: Travel