One of the most common risk management tools is insurance. Most people have insurance for their homes, their cars and their health. This limits their financial liability in case disaster strikes and costs start piling up.
If you own a pet, you also have the option to purchase insurance to cover your pet. According to the North American Pet Health Insurance Association (NAPHIA), there are 179 million pets in North America; however, less than 1 percent are covered by pet insurance.
While pet insurance is a growing industry, it still represents a small portion of the insurance market. Unlike home, auto, and health, this type of coverage is optional and may not be the right financial move for everyone.
If you have a pet, you may be wondering if insurance on your buddy makes sense in your case. Let’s go over what it is and how it works so you can decide for yourself.
What is Pet Insurance?
Pet insurance is like other types of insurance in that it’s designed to cover unexpected expenses. You pay a premium each month and when you have a medical expense related to your pet, you use it to offset the costs.
Like traditional health insurance, most policies have a deductible and cap how much they will pay for certain procedures. Pet insurance is designed to help you cover big health costs that otherwise may be too expensive.
How Does Pet Insurance Work?
Pet policies usually require that you pay the vet in full and submit the bill to the insurance company for reimbursement. Just like other insurance policies, there is typically a deductible you have to meet before you can get reimbursed.
How much you pay in premiums each month depends on your pet’s breed, age, cost of care, and coverage options. If you have a purebred dog, you may pay a higher premium, since they are prone to hereditary conditions.
Older dogs also cost more so expect your premiums to rise to reflect the potential for higher expenses. If you get pet insurance when your pet is young, your monthly payments will probably be less than if you only got coverage when the pet is older.
Most pet policies exclude pre-existing conditions and may also exclude breed-specific conditions or charge a premium to cover them. If you want the policy to cover routine care, expect to pay more.
What Does Pet Insurance Cover?
What your specific policy covers depends on which plan you pick and on the insurance provider. Some plans cover accidents such as motor vehicle crashes while others also cover illness. If you would like wellness coverage for routine care and vaccinations, plan to pay extra.
Many pet policies have a maximum they will cover under each category. For example, they may cover up to $500 for accidental ingestion or up to $375 for an allergic reaction. Before signing up for a policy, read the fine print to understand how much your responsibility would be and how much will be covered by the insurance company.
If you don’t understand how the insurance works, call up the customer service number and have them walk you through a claim. It’s best to be clear on how the policy works than to get an unpleasant surprise when you need to use it.
According to Petfinder.com, the basic cost of having a dog can range from $326 to $1,967 per year after the first year. If your dog develops health issues or needs emergency treatment, expect to pay anywhere from a few hundred to more than $1,000 per vet visit.
How Much Does Pet Insurance Cost?
There are many factors that go into the cost of pet insurance. Your pet’s breed, age, health, and the coverage type you select will all play a role in the monthly premium.
Just like with traditional insurance, costs can vary between providers, so make sure you get several quotes.
According to Consumer Reports, the average accident and illness monthly premium starts at $22 per month for dogs and $16 per month for cats. If your pet is purebred, expect to pay more because of the susceptibility to hereditary conditions.
Where you live will also affect your premiums because of the cost of veterinary care. If you live in a high-cost-of-living city such as New York or Los Angeles, your premiums will be higher than someone with a pet in Kansas City.
The best way to get an idea of how much you will pay is to get multiple quotes. Check out www.petinsurancereviews.com for an easy way to get multiple quotes and compare policies.
Pet Insurance Pros
The costs of owning a pet can add up so you need to evaluate any additional expense to ensure it makes sense for you.
Pros of having pet insurance:
- Premiums may be affordable - If you get pet insurance when your pet is young and healthy, your premiums will be fairly low. It’s a great way to get your pet covered for unexpected expenses such as swallowing a foreign object or getting in an accident. It will probably cost less than what you pay for pet food each month.
- Easy to compare - Pet insurance is much more straightforward than human insurance policies. You can easily compare coverage options and pricing tiers to decide on the best one for you and your pet. Most terminology is similar to human insurance, which makes it easier to understand.
- Choose your vet - With pet insurance, there usually isn’t an in-network or out-of-network option for care. Unlike traditional insurance, you choose your vet, pay the bill out of pocket and submit it to the insurance company for reimbursement. All you need is an itemized copy of the invoice as well as the diagnosis so you can fill out the insurance paperwork and get your money back.
- Reasonable deductibles - Your deductible can depend on the type of plan you select. However, most of the time, deductibles are very reasonable. If your pet is ill or injured, you will probably pay more than the cost of the deductible and can get reimbursed for the cost of treatment beyond that.
- Coverage when you need it - Faced with catastrophic medical bills, you may not be able to afford the cost of coverage and have to make a difficult choice. No one wants to have to choose between providing necessary care for their pet or going into debt.
Pet Insurance Cons
If you’re considering getting pet insurance, it’s important to look at the cons of getting coverage.
Cons of purchasing pet insurance:
- Higher premiums for purebred animals - If you have a pet that is a purebred, expect to pay a higher premium for coverage. Many purebred dogs and cats are susceptible to hereditary conditions that can get costly.
- Premiums rise with age - As your dog or cat gets older, the premiums tend to get higher each year. With each increase, you should evaluate if it still makes sense to continue with the coverage or if you’re better off setting money aside in a savings account.
- Pay full cost out of pocket - With pet insurance, you have the pay the full cost out of pocket and apply for reimbursement. If you face bills in the thousands of dollars, it means you have to be able to afford to pay in full. Reimbursement can take anywhere from a few weeks to more than a month.
- Limited coverage - Plans tend to limit how much you can claim each year per incident and many also have a lifetime maximum. If your pet ends up with high medical bills in a given year, your insurance may only cover a portion of them. You can also max out your plan’s limit for a particular category.
- Doesn’t cover everything - Not everything is covered by pet insurance policies. They have specific rules for what they will cover and what is excluded. Make sure you read the fine print so you don’t end up paying out of pocket for a procedure that you thought would be reimbursed by the company.
- Needless expense if your pet is healthy - If your pet only needs wellness coverage, pet insurance can end up being a needless expense.
How to Get Pet Insurance?
If you want to sign up for pet insurance, you will need the following information about your pet:
- Pre-existing conditions
- Contact info for your vet
Since most policies have waiting periods, keep in mind you may not get immediate coverage for an illness or accidents. Apply for insurance before you think you will need it to avoid getting stuck with a big bill.
The younger your pet when you get coverage, the lower your premiums. You’re also less likely to need it but will have coverage in place if something happens unexpectedly.
Does Pet Insurance Make Sense?
Whether pet insurance makes sense for you depends on a variety of factors. Just like traditional health coverage or home insurance, paying the premiums sucks until you need to use it. It’s an added peace of mind that you are prepared for an unexpected expense.
Since there is no way to predict an illness or an accident, insurance can be a relatively inexpensive way to ensure you can afford the medical bills. That way you are not faced with a choice between medical debt or putting your pet down because you can’t afford the care.
Having coverage in place can give you the freedom to make medical decisions based on what your pet needs rather than what you can afford. This can be especially helpful as your pet gets older and needs more care.
However, if your pet is relatively healthy, the monthly coverage premiums can end up as an unnecessary drain on your budget. You can decide to pay for costs as they arise or self-insure instead.
One way to help pay for medical bills is to set up a separate savings account with your pet’s name and pay a monthly premium into it. The money will start to add up and you can use them to pay for unexpected medical expenses. If you pay yourself the premiums, you get to decide what to cover out of the account and what to pay for out of your traditional budget.
If you do decide to sign up for pet insurance, enroll your pet when they are still young and healthy. Your premiums will be lower, and you will maximize your savings. You will also have peace of mind that your best friend is covered in case of unexpected medical bills.
The Bottom Line
Getting pet insurance is a highly individual decision. It can help you with unexpected medical bills and allow you to make medical decisions based on what’s best for your pet. However, if your pet is relatively healthy, the added expense can turn into a sunk cost.
Talk to your vet about the potential health problems that you may face with your pet’s breed. They can also recommend pet insurance policies. If you have multiple deductible options, go with the highest deductible you can reasonably afford to reduce your premium.
No matter which option you select, you should start a separate fund to help you cover unexpected medical expenses for your pet. This will ensure you are not left scrambling under the weight of medical bills but can focus on taking care of your pet.
Talk with a trusted financial advisor on how to fit the cost of pet ownership into your budget.
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This is a post from Clint Haynes, a Certified Financial Planner® and Financial Advisor in Kansas City, Missouri. He is also the founder and owner of NextGen Wealth. You can learn more about Clint at the website NextGen Wealth.