Now, I've never experienced this myself, and since this has happened, I've always carefully checked the fine print in the insurance documents - I want to be certain that I'd be covered no matter what comes up.
Anyway, what I'm talking about happened to a couple that I met in a hotel in Tokyo where I was staying. None of their luggage (cloths, toiletries, camera, nothing!) was anywhere to be found after they got off their plane.
They were sure that they were covered - they even had the travel agency's insurance papers with them, but when they contacted the representative listed in their travel documents - they were told their current insurance package wouldn't cover it! They were shocked. How could they not be covered for something so essential? Travel insurance would typically cover lost luggage, would it not?
They ended up spending hundreds of dollars on normal, everyday, essential items, just to get by. Their luggage did arrive in the end, but it didn't get there until three days after they landed, so a lot of good that did. They had to pay out of their own pockets (money that they won't get back), because they didn't closely check the details of their travel insurance coverage.
So please, carefully check what is covered in your insurance package before you travel, and consider purchasing additional insurance if you feel that you need it. It can be very worth it should the need arise.