UPDATED: Jan 25, 2019
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Although it has been around for decades, the pet insurance market has recently seen a lot of growth and popularity. That is in no small part thanks to some big-name insurance companies getting into the game.
Geico and Progressive partner with existing companies to offer the coverage, while Nationwide purchased veteran pet insurance company VPI and re-branded it. These big companies have made the general public more aware of the existence of pet insurance as an option for help with hefty vet bills and also helped inspire consumer confidence in the products through brand recognition.
The large number of companies offering pet insurance has certainly helped put it on the radar for more pet owners, but it has also made selecting coverage a more difficult task. Pet insurance can be a financial lifesaver, but it can also be somewhat difficult to navigate. First, it’s important to understand what it is and how it works, before deciding what coverage is right and how to select it.
What Pet Insurance Is – and Isn’t
Although most people think of pet insurance as being similar to human health insurance, it’s actually more akin to property insurance and generally works in the same way as many other property insurance policies.
Most pet insurance plans are designed to pay for unexpected vet bills that occur as the result of an accident or illness. They are not there to pay for the routine and expected bills, although there are, as we will see, some plans that do offer this sort of coverage.
Pet insurance is akin to auto insurance in that it is there to prevent an unexpected incident from causing major financial hardship, but not to pay for routine maintenance. Just as your car insurance does not pay for oil changes, pet insurance doesn’t generally pay for vaccinations. The assumption is that most pet owners are prepared for the costs of routine care, since those are predictable, but cannot anticipate an accident or serious illness. So just as you pay for car insurance to protect you from the thousands of dollars an accident could leave you owing, pet insurance is there to protect you from the bill if your dog or cat is in an accident or becomes seriously ill.
As mentioned, some pet insurance companies do offer routine care coverage, but in most cases, this operates more like a payment plan. You make monthly payments rather than paying the routine care bills as they come up. Most of these plans do offer some value thanks to discount programs, but they also have limits on what they will pay out for any specific service.
How Pet Insurance Works
The vast majority of pet insurance plans work on a combination of three main variables: deductible, annual limit, and reimbursement level.
The deductible is, like on your car insurance policy, the amount you are responsible to pay before coverage kicks in. This deductible may be annual, or it may be per-incident in some cases. How deductibles are handled is one of the many differences between insurance companies that need to be considered when making a choice.
The annual limit is the maximum amount of money the pet insurance plan will pay out in one year for all claims. This can range from a few thousand dollars up to unlimited plans offered by some insurers.
Reimbursement level is the percentage of the bill the company will pay. This is like a coinsurance amount on a health plan; if the reimbursement level is 80%, your coinsurance amount is 20%. What this means is that the company will reimburse you for 80% of the covered amount, after your deductible, and up to your annual limit.
Aside from these three main variables, there are a few other things to be aware of:
- Many pet insurance companies will only pay up to a pre-determined amount that is considered the average cost for that service. So, if your dog has a $2,000 surgery, but the pet insurance company has determined that the average cost of that surgery is $1,800, they will only pay the reimbursement percentage based on that second, lower number.
- There are often specific limits for certain services. Cruciate repair, a common surgery in dogs, is one of the most commonly limited services. Many pet insurance companies have set maximums for this service. Some hereditary and chronic conditions may also have specific limits.
- Each pet insurance company decides what is covered and what is excluded from the policy. While some things are common across the board – no company covers pre-existing conditions – some differ greatly. Reading the fine print in full is a must before purchasing a policy.
A last note on how pet insurance works – and vital one. Pet insurance operates on a reimbursement basis. With a few notable exceptions, you will always have to pay the vet up front, and then submit a claim to the company to be reimbursed based on the level of coverage you’ve chosen.
The Cost of Pet Insurance – And Is It Worthwhile?
The rate you are charged for pet insurance is usually a function of the three main variables above, along with a few other important factors related to you and your pet. Those are your pet’s age, breed, and where you live.
The younger a pet is when enrolled, the lower the rates will be – although you can expect the rate to go up over time as your pet ages. Certain breeds will be more expensive due to known proclivities for certain illnesses or injuries; larger animals tend to be costlier due to their higher cost of care in general. And location affects the rates due to the different cost of veterinary care in various parts of the country.
Thus, the rate for pet insurance can vary greatly depending on the animal itself and what kind of coverage is chosen. As with other insurance plans, a higher deductible can lower your rates – as can selecting a lower reimbursement percentage. The three variables allow you to adjust the coverage to meet your monthly budget while accounting for what you are willing and able to pay up front in the event of a claim.
The question of whether or not pet insurance is worthwhile is, as with most insurance, one of risk. Insurance is designed to be there when you need it, and it’s, of course, possible that you won’t need it. It is also possible that you will pay more over time for the policy than you get back in claims reimbursement. On the other hand, in the span of one major incident an insurance policy can more than pay for a lifetime of premiums.
Vet bills can very quickly climb into the thousands, and for many pet owners, there is no question of doing whatever it takes to save the life of a furry family member, whatever that costs. Insurance plans can allow you to make life-saving care decisions without worrying about major debt. A pet insurance policy is a peace of mind decision since there is really no way of knowing whether it will be worth having until that time comes.
Routine Care Coverage
As we have already discussed, routine care is not usually a part of pet insurance, but that doesn’t mean it is not available. Several insurance companies offer a routine care package as an add-on to their major medical pet insurance plans, and some offer it as a standalone policy.
These plans operate differently from regular pet insurance. They offer scheduled coverage limits, meaning there is a set amount that the plan will pay for each covered service. There is also an annual cap, which can generally be selected from a few levels.
There is a monthly charge for this coverage, which does not usually have a deductible, but it’s not exactly a premium. It acts more like a payment plan, allowing the annual cost of care to be spread out over monthly installments.
Most of these plans do add up to some savings if in fact, you use all of the covered services each year. For example, if your monthly charge is $10 for a $150 annual cap, and you use all of that $150, then you’ve paid out $120 and saved $30.
Bear in mind that you may still have to pay out of pocket if the cost of a service at your vet is higher than the scheduled amount for that service. For example – if your cat’s vaccinations cost $100, but the scheduled amount is $80, you will still pay $20 out of pocket on top of the monthly amount you have paid for the routine care plan.
Bottom line? These plans may be worthwhile if you need to budget for your routine care, but – in most cases – you could accomplish the same thing by putting the money in a savings account. It is helpful to have a full year of routine care bills to look at before signing up, so you know what your usual costs will be and what you might save by going with a care plan.
Insurance Versus Discount Plans
There are a few plans out there that operate differently from pet insurance – discount programs.
Discount programs are like a AAA membership; you show the card and get a discount on services wherever it is accepted. Unlike insurance, they only work at participating vets. Insurance plans can be used at any veterinarian because they are on a reimbursement basis, and the vet is not required to do anything.
Before signing up for a discount plan, make sure you have verified that the plan is accepted at your vet – or a vet you are willing to switch to. And remember that it’s just a discount plan – there is no coverage for large medical bills.
Shopping for Pet Insurance
There are a lot of pet insurance companies out there to choose from these days, and that can cause some confusion.
While comparing rates is a good start, it is also important to compare coverage levels, read the list of exclusions, and familiarize yourself with the company’s reputation. Read reviews and, if possible, talk to family and friends who may have some experience with a pet insurance plan. It is also a good idea to talk to your vet’s office, as chances are they have had some experience with several different companies and can offer their thoughts.
A good rate on an insurance policy is only a part of the picture. Saving money on monthly rates does you no good if the company doesn’t pay out when you have a claim. Before you buy, do all the research you can into how the company you are considering handles claims, and what reputation they have built for themselves with their existing clients.
Finally, make sure you thoroughly read the fine print. Most of the complaints regarding pet insurance stem from a basic lack of understanding of what is covered and what is excluded, as well as how the pre-existing conditions clause works. Understanding any insurance policy is the key to getting the most out of it.