What does trip cancellation
insurance cover?

Trip cancellation coverage - in terms of travel insurance - means that if something goes wrong and you need to cancel your trip due to a covered reason before you head off, you can claim any pre-paid, non-refundable trip costs up to the amount specified in your insurance policy.

For example:

Two days before departing on his summer getaway to Paris, Peter got sick with bronchitis and his doctor advised him not to travel. Because of this, he had to cancel his flights and hotel bookings. Under the airline’s and hotel’s cancellation policies, neither costs were eligible for a refund, so Peter would be out of pocket for $3,500. Fortunately, through his trip cancellation and interruption coverage, Peter is eligible to recover the money he has lost.