The classic insurers' nightmare is a new illness which transforms itself into a global epidemic. Sars - Severe Acute Respiratory Disease - has not done that yet, but has created more anxiety than anything since Aids.

Now it has emerged that some travel insurers, such as Direct Line and American Express, will refuse cover for Sars if you travel to affected destinations such as Toronto, while others such as Columbus and Churchill have withdrawn cover altogether for tourists visiting China.

Around 4,000 people have contracted Sars worldwide on official figures, which are certainly much lower than the real ones. China has sent Beijing's 1.7m children home from school indefinitely and cancelled May day celebrations, after almost 590 cases of Sars in the area.

Now the Foreign Office has warned people not to travel to Beijing, Hong Kong and Toronto unless they are on essential business.

Travel insurers swiftly responded by placing an exclusion zone around the destinations. Travellers in most cases will still be able to buy travel policies, but they will exclude any claim for Sars. But some insurers are refusing to sell any policies whatsoever.

However, if you are travelling via Hong Kong or Toronto only as an airport gateway to other destinations, insurers say your policy will not be invalidated.

A spokeswoman for Thomas Cook advised all travellers to discuss with their insurer exactly what they are covered for. "We will always advise people on an alternative destination," she said, "but if someone insisted on going to one of the destinations named by the foreign office they will not be covered for Sars."

But insurers are unlikely to pay out if you want to cancel your trip to Toronto or Hong Kong in fear of Sars. A spokesman for Columbus, the biggest direct insurer, said that policies would not cover travellers for cancellation. "The onus is on tour operators to find an alternative destination," he said. "Bookings are currently down by around 40% so they have plenty of availability. Policies will not cover people wanting to cancel because of a fear of Sars."

In the aftermath of the Foreign Office warning, other insurers remain undecided on their approach. As Jobs & Money went to press, Britain's biggest insurer, Norwich Union, said it was still reviewing its arrangements. "We recommend that people should avoid crowds, and particularly anyone who is sneezing. But if they come into contact with suspected Sars victims we will pay for quarantine, which usually lasts for seven days, and sort out medical bills locally.

"Flying people home if they prove seriously ill is another matter. No airline will be keen to have a Sars victim on board their flights." However, Norwich Union is understood to be considering withdrawing Sars cover in line with other insurers.

It remains unclear as to the position of people with annual travel policies, especially those obtained as an add-on benefit to current accounts. Lloyds TSB, which gives its gold card customers free travel insurance, says its insurer, GE, is still reviewing its policy. But it is likely that it will fall in line with guidance from the Association of British Insurers and exclude Sars from cover in any of the Foreign Office-named affected areas.

But the good news is that ABTA says that anyone who has booked to travel to China, Toronto or Hong Kong through an ABTA registered travel agent will be entitled to a refund if they decide not to travel. The guarantee will apply until the World Health Organisation declares the destinations safe for travel.

Tour operators have been quick to react. Almost all ABTA members had cancelled holiday tours to Hong Kong and Guangdong province at the start of the week.

Now most smaller members are calling off tours to Peking and Shangshi province, though they will look at matters again in two weeks. Many tour operators will also put Toronto off the visiting list for the time being.

Tour operators usually allow people to defer their holidays or go elsewhere. Many travellers go to Hong Kong and Guangdong as part of a much wider package like a round the world cruise. So travel companies can jiggle the itinerary to give longer elsewhere. Indeed some groups may offer people the right to have part of their money back if they do not want postponement or an alternative destination.

But that only applies if the trip to a high risk area is "a significant part of the holiday". So if half the trip was to Beijing or Eastern China, the odds are that you could get half the costs back - assuming the other options did not appeal.

Some doctors maintain insurers and tour companies are over-reacting. After all, the death rate among people who contract Sars is about 3% - less than on the more virulent forms of flu. But the disease has spread incredibly fast, and no one knows what doctors can do for victims except wait for their recovery.

So the safety-first policy is hardly surprising. Anyone planning to go to high risk areas needs to keep checking their insurer's attitude almost day by day - just in case it changes.