Should You Have Pet Insurance?

We are a pet loving society. Pet ownership is at record highs and that is likely to continue as more and more people are waiting until they are older to get married and have children. Over time our pets become part of the family. I loved growing up with cats and dogs, and it was devastating both emotionally and financially on my family whenever they had a medical emergency. To help ease the financial burden, there are now numerous pet insurance options on the market but is pet insurance worth having? Let’s first dig into the intricacies of pet insurance, the costs, and what it covers.

Pet Insurance Coverage

Coverage can be confusing so be sure to read the fine print. Generally, pet insurance covers diagnostic tests, surgery, and medication. Annual check-ups and teeth cleaning are not, along with preventative and annual check-up services, such as vaccines, and annual bloodwork. If your pet has a pre-existing condition it will not be covered.

How Expensive is Pet Insurance?

Depending on the type of pet insurance you get, you can find insurance for anything from a pet lizard to a parrot to a dog. Depending on the type of pet, prices can range between $8 a month to as much as $100 a month per pet. Premiums can depend on the area you live in, the medical history of the breed, and the age of your pet. The older the pet, the higher the premiums.

In addition to monthly premiums, when you make a claim there is a deductible which can range between $50 to $1,000 depending on the type of deductible you chose. There are also three kinds of pet insurance deductibles: annual deductibles, per incident, and per condition. Which is best? The short answer is they are all designed to share the cost between you and the insurance company. Which deductible is better depends on your circumstance and the type of pet you have.

  • Annual Deductibles

Each policy year, you are required to satisfy a given dollar amount as a deductible before the insurance company pays out anything. This is beneficial if you are going to the vet multiple times per year as you only need to pay the deductible once. Vice versa, it is not beneficial if you do not meet the deductible limit in that year since you are not getting the benefit of being reimbursed by the insurance company. If you have a high-risk pet, then it might be best to look for an annual deductible. Most pet insurance companies offer an annual deductible.

  • Per-Incident Deductibles

A per-incident deductible is where a deductible is applied for each incident that requires veterinary care. Let’s say for example you have a policy with a $100 per incident deductible and your dog gets bitten at the dog park and requires stitches. That is one incident. If a month later he eats some plastic, that’s another incident. The benefit to this type of deductible is if you do not expect to be visiting the vet often, the deductible should be lower than an annual deductible.  The downside to this type of deductible is if your pet has a chronic condition and has to go to the vet multiple times for the same reason, you will be paying a deductible each visit.

  • Per Condition Deductible

This deductible is per condition, which is good if you expect your pet to have a single major condition that dominates the cost of your vet expenses over the course of their life. However, if your pet develops multiple conditions, you need to pay another deductible for each condition that develops. After you have paid the deductible, then you start to get reimbursed by the insurer for any costs above that.

Choose a High Deductible To Save Money

If you choose to have pet insurance then select a plan with high deductibles. Why high? You have lower monthly premiums and save more now. The whole purpose of having insurance is to protect you from emergencies, and so paying low monthly premiums and going to the vet for something minor and paying out of pocket is more economical, than paying high premiums for the low chance your pet may require surgery.

The Higher the Reimbursement Rate the Higher the Monthly Premium

The reimbursement rate is the percentage at which the insurance company covers eligible expenses after the deductible is applied. Most pet insurance policies have reimbursement rates ranging between 70% and 90%. As with deductibles, higher reimbursement rates result in higher monthly premiums. Here’s an example of how it works if you have a policy with a $100 deductible, a 90% reimbursement rate and have a $1,500 claim:

Item Amount
Total claim submitted to insurance $1,500
Deductible you are responsible for -$100
Eligible expense for reimbursement $1,400
Reimbursement to you from your insurer X 90%
Total Paid by Insurance $1,260
Total Paid by You $240

That looks like a pretty sweet deal. But one thing you have to consider is the monthly premiums that add up over time.

Monthly Premiums Add Up Over Time

Monthly premiums are mostly related to how high or low your deductible is. Using consumeradvocate.org’s sample calculator for a 1-year-old puppy as an example, the monthly deductible is $55.53 or $666.36 per year.

If you decide to raise the deductible to $500 instead and select a 70% reimbursement option, your premiums would go down by $24 a month or $288 per year, for a total of $378.36 per year.

The $288 annual difference may not seem like much. But over 10 years, that difference would grow to over $2,880. Let’s use an example using the previously mentioned figures:

Example 1: Low Deductibles/High Monthly Premiums

  • Over 10 years, you bring your pet to the vet 3 times for unexpected veterinary care ranging between $800 and $1,500. Let’s use $1,200.
  • Your monthly premium is $55.53 per month.
  • Your policy has an annual deductible of $100.
  • Your coverage is 90%

Cost= ($55.53 per month * 12 months * 10 years) + ($100 deductible * 3 uses) + (10% uncovered cost * $1,200 * 3 uses) = $7,323.60

Insurance payout= (90% * $1,200 * 3 uses) = $3,240

Net benefit= $3,240- $7,323.60= -$4,083.60

Having this insurance policy gave you $3,240 of benefit, vs $7,323.60 in costs, for a net negative cost of $4,083.60.

Example 2: High Deductibles/Low Monthly Premiums

  • Over 10 years, you bring your pet to the vet 3 times for unexpected veterinary care ranging between $800 and $1,500. Let’s use $1,200 again.
  • Your monthly premium is $31.62 per month.
  • Your policy has an annual deductible of $500.
  • Your coverage is 70%.

Cost= ($31.62 per month * 12 months * 10 years) + ($500 deductible * 3 uses) + (10% uncovered cost * $1,200 * 3 uses) = $5,654.40

Insurance payout= (70% * $1,200 * 3 uses) = $2,520

Net benefit= $2,520 – $5,654.40 = -$3,134.40

Having this insurance policy gave you $2,520 of benefit, vs $5,654.40 in costs, for a net negative cost of $3,134.40.

Other Considerations

Some pet insurance policies limit the amount paid in claims for your pet. There are five different types of limits on payouts:

  • Maximum payout per incident
  • Maximum payout per year
  • Maximum lifetime payout
  • Maximum payout per body system
  • Maximum payout based on a schedule of benefits

Look at the fine print for all of these, but especially the maximum payout per incident. If your pet has a life-threatening condition, the last thing you want is to be capped on the payout, which would defeat the purpose of having insurance in the first place.

Lastly, most pet insurance policies reimburse you. This means you incur the expense up front and get paid back later.

Is Pet Insurance Worth Having?

As with anything, it depends. Ask yourself the following questions first:

  • Do you have an emergency fund? If no, then having pet insurance might be beneficial. Along those lines, ask yourself if you could save the monthly premiums you would be paying to build an emergency fund instead.
  • What kind of pet do you own? If you own a high-risk pet, then pet insurance might be helpful.
  • Can you afford an emergency vet visit? Look online for what those costs might be depending on your breed. If no, then consider pet insurance.

Keep in mind if you do get pet insurance, not only are you paying monthly premiums, the insurance policy you have only covers a portion of the costs, ranging between 70% to 90% (some offer 100% with a high monthly premium). That is a lot of money for something that may not happen. It would be like paying a monthly premium for an extended warranty on a TV, and then paying more out of pocket when you need to use it, and then only getting reimbursed a portion of the cost to fix that TV. Fuck that.

Summary

Only you know if your circumstances warrant having pet insurance. If it helps you sleep at night and have peace of mind, that alone can be worth the cost. However, if you are able to, I would recommend starting and/or maintaining an emergency fund instead. An emergency fund allows you to avoid paying monthly premiums for a service that you may not need, and gives you a buffer in case an emergency with your pet arises. Furthermore, the money you save on monthly premiums could be invested, giving you a greater return on your money than any pet insurance policy.

Legal Disclaimer: The views expressed by Mr. Dumont on Money Sensei are solely his and not intended as investment advice nor a guarantee of any financial return. Mr. Dumont is not an investment or tax professional, so the information contained on the blog is not a substitute for professional advice. The contents of this blog are accurate to the best of his knowledge at the time of posting, but rules and laws are ever-changing. Please do your research to confirm that you have the current information.

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