What Is Pet Insurance and How Does It Work?

Pet insurance is a healthcare policy for your pet that reimburses you for certain medical expenses. This protects you against the risk of paying high medical care fees—or worse, having to put your pet down because you can’t afford a surgery. If a surprise accident or illness does hit, having an insurance plan can be a lifesaver. However, not all illnesses are covered by pet health insurance plans, so you should read the fine print on your plan before you buy.

Pet Health Insurance Explained

Pet insurance is a way to save on veterinary costs when your pet gets sick or is injured. Most pet health insurance plans are paid on a monthly schedule and cost a few hundred dollars a year. By paying the premium, you can get most medical costs reimbursed (although coverage tends to exclude hip dysplasia, a common dog ailment, and preexisting conditions). As with regular health insurance, the policyholder pays a small portion of the bill and the insurance company pays the remainder. Unlike regular health insurance, you do have to pay out of pocket first. After you pay the vet, you can file a claim with your insurer to be reimbursed.

With Pet InsuranceWithout Pet Insurance
  • You pay a premium every month to secure coverage if an accident or illness occurs
  • Treatments can be fully or partially reimbursed by your lender
You pay out of pocket in full for all medical treatments

While paying 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. Many times, pet owners without insurance can't afford to put their savings towards a large medical expense and are forced to put their pet down. When deciding if you should get pet insurance, it's important to consider the huge cost of major medical treatments.

Without insurance, illness and injury treatments can cost pet owners hundreds or thousands of dollars per incident. If your dog or cat gets cancer, the radiation therapy can cost as much as $5,000 or $10,000. Surgeries for tumor removal or to rectify another serious condition can total anywhere from $3,000 to $6,000. However, if you put $30 to $40 dollars a month towards a pet healthcare plan, you can reduce the immediate out of pocket price of medical procedures by thousands.

What's Excluded

Before purchasing, you should make sure that you're clear about the breadth of your specific contract. Standard pet insurance will cover most accidents and illnesses, but insurance providers will exclude some common things. Here are the most common exclusions:

  • Dental disease
  • Preexisting or hereditary conditions
  • Behavior issues
  • Routine check-ups, preventative care
  • Hip dysplasia
  • Grooming

Even the best insurers won't completely cover preexisting conditions, which are defined as ailments that your pet had before you purchased coverage. Some insurers like Embrace will cover curable preexisting conditions, but not incurable ones. For owners with pets that are already sick and can't be cured, this means that pet insurance may not provide a lot of coverage.

How Pet Insurance Works

To prevent people from getting insurance when their pet is already sick, companies also have a waiting period between when you buy your policy and when illness coverage begins. For accident coverage, the waiting period is usually a few days. Insurers will require your pet to get a check-up before your coverage kicks in to establish any pre-existing conditions.

To get reimbursed by your pet insurer, you must pay out of pocket first and then file a claim afterwards. Insurers will evaluate your claim and, if approved, either direct deposit you the reimbursement funds 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, and the main parts are:

  • Deductible: The money you have to pay towards a bill (either per year or incident) before the insurer pays. Ranges from $0 to $1,000.
  • Reimbursement level: After the deductible is paid, the percentage of the bill that will be reimbursed by the insurer. Usually 50% through 100%.
  • Annual max: The maximum amount your insurer will pay in medical bills each year. Any charges incurred above the max will be paid out of pocket.

For example, let's say your plan has a 100% reimbursement level, $50 deductible and a $10,000 annual max. If your pet gets into an accident that ends in $15,000 of medical bills, you "pay" for the first $50, and the insurer would reimburse you for $10,000, and you are responsible for the remaining $4,950.

What Affects Your Pet Insurance Premiums

The cost of pet insurance is dependent on how comprehensive you want your coverage to be, the pet you have, and where you live. In general, keep in mind you'll pay more each month if you want to pay less per incident. You can decide whether you prefer a lower monthly payment or more money back when an illness or injury strikes. A low deductible and high reimbursement level will lead to low costs per incident but a higher premium each month. Additionally, some plans allow you to select how much in medical costs you want the insurer to cover each year. This is called the annual max, and selecting a high max will mean a higher monthly payment.

Insurers also charge you based on what procedures you want to have covered. If you take less risk, and the company foots most of the bills, your premiums will be higher. Most plans provide the option for you to purchase "endorsements," or add-ons, which enhance your core coverage. Common endorsements are for things like exam fees, routine check-ups or prescription food. These allow you to be reimbursed for pet expenses which your plan wouldn't normally cover.

Apart from coverage level, below are some factors about your pet that insurers use to calculate insurance premiums.

  • Species. Dogs cost more to insure than cats, with male dogs having the highest premiums and female cats the lowest.
  • 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.

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.

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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