As war worries deepen, can we call off a holiday?

If you've booked a diving holiday in Egypt, a week in the Turkish sun or even a break in the States, the threat of war may be worrying you. But if you're jittery about going and want to cancel, getting a refund will depend on your holiday company sharing your fears.

Whether you booked your break last year or last week, you will still not be covered by your insurance in the event of war or terrorist attacks.

"The majority of policies are very specific on what the cancellation cover applies to," says Malcolm Tarling at the Association of British Insurers (ABI). "There's a standard clause in all policies stating that you're not covered for war or terrorism, although you are usually covered if you are too ill to fly, a close relative is very ill, you lose your job or have to do jury service."

If you do go on holiday, however, and you're caught up in conflict, you may be covered for medical treatment under the terms of your travel insurance. Most companies include this, but not all, so you should check the terms and conditions.

You'll only be able to claim a refund from a tour operator or airline if that company is both a member of the Association of British Travel Agents (Abta) and has cancelled the holiday itself on the advice of the Foreign and Commonwealth Office (FCO).

"The tour operator will decide how far in advance it will begin cancelling holidays to your destination, should this become necessary," says a spokeswoman for Abta. "And this will be typically one to two weeks prior to your departure."

If you're overseas already and the FCO advises against being in that country, the company will either get you back home as soon as possible or move you to a safer destination. If you are brought home early, you will be entitled to a refund.

It seems that some people are waiting until the situation in the Gulf becomes more certain before they book this year's holiday. January is traditionally the busiest time of year for the package holiday industry. But Abta says this January was the worst for bookings since the 1991 Gulf War: sales were down 20 per cent compared with January 2002.

But the fear of war is not the only reason for the low booking levels. A recent Mori poll for Abta revealed that most people are postponing their holiday because they believe they'll get a better deal if they wait for a last-minute offer.

"We've seen a trend for people to book late over the last five years," says Sue Ockwell of the Association of Independent Tour Operators (Aito). "There are more single people now with more flexible lives, and they are able to go at short notice. It's only people with families who have to take holidays at certain times and need to book early to get what they want."

Operators that cover the eastern end of the Mediterranean are suffering the most, with places like Egypt, Israel, Oman and Jordan doing particularly badly. But the travel industry is thinking on its feet, with some companies offering refunds or first- and second-choice destinations in return for early bookings. Gradually, it is becoming cost-effective to book early rather than wait for cut-price offers.

So if you have not yet booked your summer holiday, now could be a good time to do so. Millions of holidays for May, June and July remain unsold, and prices have fallen. When demand returns after a war, as it tends to, travellers could be left with less choice and higher prices. This was certainly the case in 1991 after the war. "It was so quick," says Ms Ockwell of Aito. "The drop in demand for holidays was like a tap being turned off for five weeks, and after that the tap was turned back on full blast."

But if you're attracted by cheap offers, make sure the company you travel with is registered with Abta. That way, your money is safe if the operator goes bust. To protect yourself against the failure of an airline, take out scheduled airline insolvency protection, too, as part of your insurance policy.

Whatever you do, don't travel without insurance. Even if it doesn't cover you for war and terrorism, there are many other things that can go wrong on holiday.