September 28, 2020

What Is Pet Insurance and Do You Need It?

About Brookdale Senior Living

Senior french bulldog in a doggy wheelchair.

We all love our fluffy, four-footed friends, and we want to ensure that they get the care they need when they need it. But with pet expenditures reaching an eye-popping, record-setting $95.7 billion in 2019, you might be wondering what you can do to avoid contributing to a new pet-spending record in 2020.

To help ease the impact on the ole bank account, some people are considering pet insurance to help with vet bills and related expenses. The first pet insurance policies in North America were offered in 1980, but even with that relatively short history, the industry has evolved to serve close to 2.82 million pets and has its own trade association, the North American Pet Health Insurance Association (NAPHIA). Even giant insurance companies like Nationwide and Progressive are getting into the pet-insurance game.

What exactly is pet insurance, and how can pet insurance help you? In a nutshell, pet insurance is an insurance policy for your pet that can reimburse you for a portion of your pet’s eligible veterinary bills when your fur-friend needs medical care. The available policies can vary widely based on the type of animal you’re covering as well as the breed, but to simplify the discussion, we’ll cover two types of pet insurance tracked by NAPHIA: accident-only and accident and illness.

Accident-only coverage is pretty much what it sounds like — it is designed to cover medical expenses in case Killer Mike, your Chihuahua, breaks off his leash and injures himself protecting you from someone riding a bicycle nearby. What constitutes an accident should be defined in the policy you choose, but generally speaking, this coverage is meant to handle expenses due to a run-in with a car, a laceration, poisoning or swallowing the squeaky part of that dumb toy he loves so much. In 2019, the average monthly accident-only premium for a dog was $16.17, and the average annual accident-only premium was $194.09. Cat coverage was slightly less expensive; the average annual premium was $126.08, and the average monthly premium was $10.51.

Accident and illness coverage is designed to take care of the expenses mentioned above, plus illnesses such as cancer, infections and digestive problems. Some accident and illness coverage may also reimburse you for part or all of your preventative care. Because an accident and illness policy generally covers more vet expenses, it’s typically a more expensive product. The average monthly premium for a dog’s accident and illness policy was $48.78 in 2019, and the average annual accident and illness premium was $585.40. For a cat, the average monthly premium was $29.16, and the average annual premium was $349.93.

Now the real question: Is pet insurance worth it? The answer is a qualified maybe. Policies can vary widely based on species and breed, and each policy has its own list of exclusions and reimbursements. In addition, when you create a policy for your Maine Coon, Princess Fluffy Toes, you’ll have to decide on a deductible (which is generally defined as the amount you must pay out of pocket before your insurance provider begins to pay any expenses), your reimbursement percentage and your annual limit. The math is pretty straightforward here — generally, the more you choose to cover, the more you’ll pay in premiums.

Photo of senior dog with his owner in the background.

Now let’s go over what that looks like in real life. Your lovable mutt Brutus dug a hole under the fence and wandered into the street in front of your house, where he chased cars with doggish glee … until he finally caught one. Now he needs emergency surgery to patch him up, and the vet says it will cost you $2,500.

Good news! You may be covered. Assume that you’ve been paying for an accident-only policy for two years without incident at the average accident only dog premium rate of $194.09 annually. Your deductible is $100, and your reimbursement rate is 80%, which means insurance should pay for $1,900 of the $2,500 bill. You would be on the hook for $600 out of pocket. That’s a lot of money, but it’s definitely better than $2,500. Your approximately $400 investment in pet insurance has saved you around $1,900 out of pocket.

That sounds great, but here’s the thing about math: You can tweak any one of those parameters and get a completely different result. It’s possible that you might pay $200 a year for 16 years and max out your benefit every year. Or you could pay almost $600 a year for a decade and find, unfortunately, that your pet’s rare ailment is in the list of exclusions. This is why, ultimately, the decision of whether or not to buy pet insurance for your little cuddle-wuddles is a decision that requires a bit of research, a good understanding of what your budget can and can’t handle, and some honest reflection on what you are and are not willing to do for your pet.

If you choose to go the pet insurance route, we leave you with this advice: find a reputable company to write the policy, and make sure you understand all the ins and outs of the policies you're considering. If you find yourself confused, ask an independent professional to walk you through some hypothetical scenarios, and don’t ever feel pressured to buy something you don’t understand or can’t afford.

_{^{This content is shared for educational and informational purposes only. The content is not intended to be a substitute for professional or financial advice and should not be relied upon for making insurance, financial or other decisions. Please consult your attorney or insurance professional before acting on any content on this website.}}

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