World First Travel Insurance has extended all of its policies to cover holidays paid for using points from loyalty schemes such as Airmiles, Tesco Clubcard and Nectar this summer.

The provider decided to update its policies - including single-trip, annual and travel insurance for over 65s - after statistics revealed that 41 per cent of loyalty scheme members plan to redeem their points against a holiday this year.

A survey by Airmiles indicated that travel is the largest area to benefit from loyalty schemes, which allow consumers to extend their spending power.

However, not all policies will reimburse the cost of holidays booked with loyalty points and then cancelled due to illness or redundancy.

With an even smaller number providing cover for over 65s, World First senior partner Martin Rothwell urged holidaymakers that reading the small print is "vital".

He said: "We are all looking to stretch our pounds during these tough economic times.

"World First wants to let consumers know that it is more important than ever to take out travel insurance whatever sort of holiday booked and however it is paid for."

Earlier this month, the provider warned that one in four holiday companies are breaking rules set by the Financial Services Authority on the selling of travel insurance.