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Flight delayed or canceled? You could be paid up to $1,000

No one looks forward to a long flight delay, late luggage delivery or hours spent inside an airplane idling on the tarmac. But since May, fliers who have purchased a new type of travel insurance product have been getting paid — at times within hours — up to $1,000 for enduring these all-too-common travel experiences.

"I purchased the plan for my wife and myself, and our flight from New York to Phoenix on June 3 was tarmac-delayed due to an inbound thunderstorm," said Stuart Kritz of Melville, New York. "After arriving in Phoenix five hours late, I learned AirCare was funding my PayPal account $1,000 for each of us and by 2 p.m. the next day, the account had been funded."

lights are shown cancelled due to winter weather at Louis Armstrong International Airport on January 28, 2014 in New Orleans, Louisiana. Due to icy condition most businesses and schools have been closed in the metro area.
Getty Images
lights are shown cancelled due to winter weather at Louis Armstrong International Airport on January 28, 2014 in New Orleans, Louisiana. Due to icy condition most businesses and schools have been closed in the metro area.

Just 76.9 percent of commercial flights arrived on time in May, down from 79.6 percent in April, according to the latest report on airline performance from the Department of Transportation.

AirCare aims to ease the stress of air travel. Offered by Berkshire Hathaway Travel Protection, a policy costs just $25 per domestic trip. The insurance pays a traveler $50 if a departing or connecting flight is delayed by two or more hours, $500 if a flight delay leads to a missed connection and $1,000 if a tarmac delay exceeds two hours. Payments for baggage woes include $500 if misplaced luggage is delayed by more than 12 hours and $1,000 for bags lost or stolen.

"There are 660 million air travel segments a year that could have a problem," said John Noel, Berkshire Hathaway Travel Protection president. "That's our market potential."

Read More Keeping score on airlines: More delays, mishandled luggage

AirCare is designed to fill a gap left by the $2.5 billion traditional travel insurance market, which most commonly offers to cover losses from trip cancellation and delay, lost baggage and medical emergencies.

"We will add those products in the future, but we're starting by solving a different problem by offering coverage for more common day-to-day travel concerns," said Mike Meeks, chief operating officer at Berkshire Hathaway Travel Protection.

In cases of delay, AirCare tracks a traveler's flights and automatically deposits any funds due into the customer's PayPal or bank account. Services of a travel assistance concierge to help you rebook are included and, of course, there's an app.

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"The coverage for being stuck on the tarmac is something not seen in other programs," said Scott Bryan, manager of travel insurance sales for Virtuoso, a luxury travel adviser network.

Jim Grace, president and CEO of InsureMyTrip, a travel insurance comparison and review site, said the automatic claims-paying feature is innovative and convenient for travelers. "They've done a great job at breaking the mold," he said.

Neither Virtuoso nor InsureMyTrip currently offers AirCare to its customers.

"I love what they're doing, but I'm waiting for the next product," said Grace. "The product they have now may work best for the business traveler, but I want to see trip cancellation and other benefits that would fit much better with the broader leisure market we live in."

AirCare is currently available in 42 states. The company plans to expand coverage, at a higher per-trip cost, to international flights within the next 30 to 60 days. A plan that would cover multiple flights at a discount could be offered by the fall.

About 30 percent of American travelers buy some sort of travel insurance, and in a recent survey by the US Travel Insurance Association, 40 percent of respondents who would consider insuring a future trip said they would do so for trips costing $500 per person or more.

"The high cost of travel insurance and inconvenience of submitting claims can deter consumers from purchasing policies," said IBISWorld analyst Leah Goddard. "But AirCare's low-cost, ease of use and last-minute accessibility [allowing] customers to purchase travel insurance up to one hour before their scheduled departure should make major inroads with the technologically connected travelers of today."

By Harriet Baskas of NBC News

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