What Is Pet Insurance and How Does It Work?
Pet insurance is like a health care policy for your pet that reimburses you for certain medical expenses. In the event of an 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 a policy before you buy.
What is pet health insurance?
With a pet health insurance policy, you'll pay a monthly premium to an insurer. If your pet gets sick or is injured, you'll pay their health care providers up front. Then you'll submit a claim to the insurance agency for reimbursement.
Depending on the policy, you may need to pay a deductible and a percentage of the bill. Additionally, you'll need to understand your coverage, because policies usually exclude certain illnesses and preexisting conditions.
Coverage typically costs up to a few hundred dollars per year. The benefit of pet insurance is to help cover the costs associated with a major procedure or medical treatment. Illness and injury treatments can cost pet owners hundreds to thousands of dollars.
Example
Radiation therapy can cost as much as $5,000 to $10,000 if your pet has cancer. Surgeries for tumor removal may cost up to $6,000.
Without insurance, you may be faced with a tough decision if you can't afford a large vet bill.
But if you put $30 to $40 a month toward a pet health care plan, you'll probably pay a lot less out of pocket.
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How pet insurance works
Companies typically require a health checkup for your pet and impose a waiting period before coverage kicks in. This is to prevent pet owners from getting insurance when a pet is already sick. For accident coverage, the waiting period is usually a few days.
When you need to use the insurance, you must pay the vet bill first and then file a claim. If the insurance company approves your claim, it will either deposit the money in your account or send you a check in the mail. This process typically takes two to three business days. However, it can take longer than a week for more complicated claims or if you receive reimbursement through the mail.
Your reimbursement depends on how your plan is structured. Here are the main parts of most pet insurance plans:
- Deductible: This is the amount you must pay before coverage kicks in, either per year or per incident. It commonly ranges from $0 to $1,000.
- Reimbursement level: After you pay the deductible, the insurer will pay a percentage of the remaining bill — often 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.
Let's say your plan has a 100% reimbursement level, $50 deductible and $10,000 annual max.
One year, your pet gets into an accident that results in a $15,000 medical bill. You'd 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. You would be responsible for the remaining $5,000 out of pocket.
What's not covered
Before purchasing pet health insurance, you should be clear about what the plan covers. Standard pet insurance covers 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 companies, such as Embrace, 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 no longer considers it a preexisting condition and covers 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.
What affects your pet insurance premiums?
The average cost of pet insurance depends on your pet, the coverage you buy and where you live. Companies also look at:
- Species: Dogs cost more to insure than cats.
- Gender: Male animals generally come with larger premiums.
- Breed: Larger pets typically cost more to insure. That's because they tend to have a shorter life span 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 plan with a low deductible, high reimbursement level and high annual maximum will reduce your out-of-pocket costs per incident. But it will usually cost more each month than a high-deductible plan.
Consider a policy with a 100% reimbursement level, $50 deductible and no annual max. This would allow you to pay only $50 per incident. But a plan like this could cost you more than $100 per month. And you'll likely be paying for more coverage than you need.
Instead, you should choose a policy that is affordable, but 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 coverage for 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. In this case, your only medical costs would be out-of-pocket annual checkups.
However, going without insurance is a risk that not everyone wants to take. The right level of coverage varies from pet to pet. You should think about your pet's illness history and whether it is injury-prone when making your decision. If you don't have the money to pay for a surprise surgery, then you could face the tough choice of helping your pet or saving your money.
How much does pet insurance cost?
Accident and illness plans for dogs cost around $49 a month, on average. Cat insurance is a bit cheaper, averaging $29 per month.
The average cost of pet insurance varies based on your pet's species, breed and age.
Your monthly rate is also affected by the policy coverage you choose and where you live. For example, areas with higher vet costs — like California and Washington, D.C. — also have higher pet insurance rates.
The cost of pet insurance isn't just your monthly premium. It can be broken down into four main categories.
Monthly pet insurance rate
Your monthly rate is the amount you pay for medical insurance for your pet. Some companies offer a discount if you pay one lump sum at the beginning of each year.
Pet insurance deductible
Your deductible is the amount you have to pay before an insurance company will cover the cost of any treatments for your pet. Make sure you figure out if this is an annual or per-incident deductible — or both.
Example
Your pet gets into an accident in January, and you spend $200 at the vet. If you have a $100 annual deductible, your costs will be fully covered for the rest of the year.
But if you have a per-incident deductible, you would have to pay the $100 deductible again before the insurance company would help pay for your pet's allergy treatments in the spring.
Pet insurance copay or reimbursement rate
A copay is the percentage of a vet bill that you are responsible for paying. The reimbursement rate is the percentage an insurance company will pay back to you. A 10% copay rate is the same as a 90% reimbursement rate.
Example
You have an annual deductible that has already been met when your dog breaks his leg. The vet bill is $2,000. A 10% copay means you're responsible for $200, and the insurance company would reimburse you $1,800.
Pet insurance maximums, limits and ceilings
Your policy maximum is the highest amount an insurance company will pay out. Your maximum can be for a set period of time, all accidents, all illnesses or anything covering a certain body part.
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