Holiday Atol protection to be expanded from 30 April
Up to six million UK holidaymakers will get extra protection from 30 April if an operator collapses.
The government has confirmed that the Air Travel Organisers' Licensing (Atol) scheme will be expanded.
Package holidays are already covered by the scheme. Under the changes, flight-plus holidays - that look like normal packages but are not protected - will be covered.
But travel organisation Abta said the changes did not go far enough.
And the changes could lead to rising prices for holidaymakers.
The current scheme, run by the Civil Aviation Authority (CAA), only offers protection for those who buy package deals and some flights if their tour operator or travel agent goes bust.
The scheme began in the early 1970s and was last overhauled in 1995. However, it has now become commonplace for holidaymakers to book online, and many have found they were not protected, even though it felt as though they had bought all the elements of the holiday from the same provider as a package for one price.
Under the new rules, "flight-plus" holidays will be covered. These are trips, including a flight, where the various elements were bought within a specified short time period.
A certificate will also be issued for all Atol-protected holidays, so people know that they are covered.
"The Atol scheme has been providing peace of mind for holidaymakers for decades, but the way we book holidays has changed and the scheme needs to move with the times. All too often, customers are unsure as to whether they are protected or not," said Aviation Minister Theresa Villiers.
"The changes I am making today will provide much-needed clarity and reassurance for millions of people booking their holidays."
As with now, the new rules would not cover do-it-yourself holidays. For example, somebody who buys a flight from an airline and then books accommodation directly with a hotel would not be Atol-covered.
"We believe all holidays, however they are booked, should be financially protected," said Mark Tanzer, chief executive of Abta.
"The reforms announced today mark a significant first step to improving a system that is outdated, unfair and confusing. We consider the inclusion of holidays sold by airlines an essential second step.
"While we are pleased the government acknowledged the need to include these today, we urge them to act swiftly to introduce the necessary legislation to make this happen."
Businesses pay £2.50 into a fund for each booking that covers the cost of refunds and repatriations. Those operators who are Atol-protected also have extra insurance costs.