A good question! You would expect it to mean what it says, but the fact is - what is actually included varies enormously from Island to Island.
Most "All Inclusive" Islands include:
Breakfast, Lunch and Dinner Buffet Style
Non-premium brand drinks for some proportion of the day, including meal times
Non-motorised watersports
But may not include:
Bottled water
A la Carte Restaurant meals
Cocktails (other than "cocktail of the day")
Motorised watersports
Hire of snorkelling equipment
Spa treatments
Mini-bar drinks
24 Hour bar service
Snacks
So it pays to check whether the things that are important to you are actually included.
Some Islands offer an "upgraded" all Inclusive - typically called "All Inclusive Plus" or "Ultra-All Inclusive" or "VIP All Inclusive" - all of which fill in most of the things missing from a standard All Inclusive.
So if an Island offers both options, you can be sure the Standard All Inclusive will be fairly limited! If it offers only one level - it may be great, or it may not.
It seems a lot of people get confused by the term all inclusive. I just wrote a short post on the pros and cons of all inclusive holidays: http://www.squidoo.com/what-does-all-inclusive-mean-anyway-
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