What Is Pet Insurance and How Does It Work?

What Is Pet Insurance and How Does It Work?

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Pet insurance is a health care policy for your pet that reimburses you for certain medical expenses. In the event of a surprise accident or illness, having a pet insurance plan can protect your finances. However, pet health insurance has its limitations, so you should read the fine print on your policy before you buy.

What is pet health insurance?

Pet health insurance is a policy that comes with a monthly premium. If your pet is sick or injured, you foot the bill upfront and submit a claim to the insurance agency for reimbursement. Depending on the policy, you may also need to pay a deductible and a percentage of the bill — and policies typically exclude certain illnesses and preexisting conditions.

While the monthly premiums can add up to a few hundred dollars per year, the benefit of pet insurance is that cost will be less of a factor when deciding whether to go through with a major procedure. Illness and injury treatments can cost pet owners hundreds or thousands of dollars.

For example, radiation therapy can cost as much as $5,000 or $10,000 if your pet has cancer, and surgeries for tumor removal may cost up to $6,000.

Without insurance, pet owners may be faced with a tough decision if they can't afford a large vet bill.

But if you put $30 to $40 a month toward a pet health care plan, you can reduce your out-of-pocket costs considerably.

What's excluded

Before purchasing pet health insurance, you should be clear about what the plan covers. Standard pet insurance will cover most accidents and illnesses, but there are usually some exclusions, such as:

  • Dental disease
  • Preexisting or hereditary conditions
  • Behavior issues
  • Routine checkups
  • Preventive care
  • Hip dysplasia
  • Grooming

Even the best pet insurance carriers don't cover preexisting conditions, which are ailments your pet had before you purchased coverage.

But some insurers, such as Embrace, will cover curable preexisting conditions in some cases. If your pet shows no signs or symptoms of the condition for 12 months after the date of onset, Embrace will expire it as a preexisting condition and cover it for the life of the pet.

If your pet is already sick and can't be cured, pet insurance may not provide a lot of coverage.

How pet insurance works

To prevent owners from getting insurance when their pet is already sick, companies typically require a health checkup and impose a waiting period before coverage kicks in. For accident coverage, the waiting period is usually a few days.

When you need to use the insurance, you must pay the vet bill out of pocket first and then file a claim. Insurers will evaluate your claim and, if approved, either deposit the funds in your account or send a check in the mail. This process usually takes two to three business days, though it can take longer than a week for more complicated claims or if you receive reimbursement funds in the mail. Your reimbursement depends on how your plan is structured. Here are the main parts:

  • Deductible: This sum is the amount you must pay before coverage kicks in — either per year or incident — and usually ranges from $0 to $1,000.
  • Reimbursement level: After paying the deductible, the insurer will pay a percentage of the bill, usually 50% to 100%.
  • Annual max: Your insurer will stipulate the maximum amount it will pay in medical bills each year. You'll need to cover any charges above the max.
For example, let's say your plan has a 100% reimbursement level, $50 deductible and a $10,000 annual max. One year, your pet gets into an accident that results in a $15,000 medical bill. You pay the entire bill and then submit a claim along with your $50 deductible. The insurer would reimburse you $9,950, which is 100% of the annual max, minus the deductible. Then, you'll be responsible for the remaining $5,000.

What affects your pet insurance premiums?

The average cost of pet insurance depends on your pet, the coverage you buy and where you live. Insurers will also look at:

  • Species: Dogs cost more to insure than cats, and male animals generally come with larger premiums.
  • Breed: Larger pets generally cost more to insure because they tend to have shorter life spans and develop more health issues.
  • Age: Younger pets are cheaper to insure, as they usually have minimal health issues in their early years.
  • Location: Premiums vary according to state and ZIP code, with more densely populated areas carrying higher insurance costs.

Generally, a low deductible, high reimbursement level and high annual maximum will reduce your out-of-pocket costs per incident but will result in a higher premium each month.

Consider a policy with a 100% reimbursement level, $50 deductible and no annual max. This would allow you to pay only $50 per incident. However, such a plan will cost you over $100 per month, and you'll likely be paying for more coverage you need. A more reasonable strategy is to choose a policy that is affordable for your monthly budget, but that also keeps your out-of-pocket costs per incident low.

Most plans also let you purchase "endorsements," or add-ons, which enhance your core coverage and increase your monthly premium. Common endorsements include exam fees, routine checkups or prescription food.

It's important to note that purchasing pet insurance isn't necessarily more affordable than going without it. It's possible for your pet to never get sick or hurt and for your only medical costs to be out of pocket annual check ups. However, going without insurance is a risk that not everyone wants to take. The appropriate level of coverage varies from pet to pet, but you should think about your pet's illness history and whether your pet is injury-prone when making your decision. If you don't have thousands in available cash to pay for a surprise surgery, then you can be faced with the tough choice of aiding your pet or saving your money.

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