"Dogs are the leaders of the planet. If you see two life forms, one of them's making a poop, the other one's carrying it for him, who would you assume is in charge?"
-Jerry Seinfeld
In the United States, a subsidiary of Nationwide wrote the first pet insurance policy in 1982 on the dog that played Lassie, the star of the American television series of the same name.
Since then, there has been a debate on the value of pet insurance and whether it makes financial sense to obtain over your pet's life. The short answer is it depends.
Does Pet Insurance Make Sense?
With any insurance cost-benefit analysis, the purchaser must account for many variables to determine the overall benefit weighed against the random probability of an event happening. Adding to the decision's complexity is the affection we have for our pets, which attaches an emotional element to the decision-making process.
In the U.S., 67% of households own a pet, according to a 2019-2020 survey conducted by the American Pet Products Association. This percentage is up from 56% in 1988, which was the first year the APPA conducted the study.
However, with this increase in pet ownership has come a dramatic rise in veterinary care costs to keeping all those animals healthy. The Insurance Information Institute has estimated that total 2019 pet industry expenditures will top $75 billion when accounting for total pet ownership costs, including food and toys. A standard surgical visit for dogs is $426 and $214 for cats. These amounts can quickly increase into the many thousands of dollars if more extensive surgery or treatment is needed.
When asked how they would cover a $5000 vet bill, almost half of pet owners stated they would not be able to cover it, as can be seen in the Pawlicy Advisor's graphic below.
These numbers would suggest that most pet owners benefit from buying insurance since out-of-pocket costs can be high. Although the number of insured pets is growing each year, the overall percentage covered remains low at around 2% by some estimates.
How Does Pet Insurance Work?
Pet insurance shares many similar characteristics to regular health insurance. There are monthly or annual premiums, and there is a yearly deductible that you will need to meet before insurance benefits kick in. Once you reach the deductible, the copay is usually around 80% of the out-of-pocket medical expense. However, unlike traditional health insurance, preexisting conditions are rarely covered for animals. Additionally, you will usually be paying for the medical bill upfront, and the insurance company will reimburse you after you submit your claim.
How Much Does Pet Insurance Cost?
There are approximately 20 companies in the U.S. that offer pet insurance, and the premium you pay will vary widely. As with other types of insurance, it pays to shop around.
Some items that will affect your policy's cost:
your pet's age
the breed since some are predisposed to certain health conditions
gender
the area of the country where you live.
Investopedia.com has put together a shortlist of insurance plans that they feel fit well, depending on your specific situation. Nationwide, Lemonade and HealthyPaws are a few companies not on the list that also may be worth exploring.
Policy cost is, not surprisingly, one of the most important considerations. The reason being, if you purchase a policy, but over time find you can no longer afford the premiums, you may wind up dropping the coverage just before your pet needs it the most. It is vital to know premiums from many insurance companies increase as your pet gets older. In a worst-case scenario, this could lead to economic euthanasia or putting an animal down due to not being able to afford the cost of a medical procedure.
The type of coverage you purchase will also determine the overall cost of the premiums.
Three Main Types of Policy Coverage
1. Wellness
Wellness policies are the lowest in cost and cover routine and preventative care. Generally, they do not make financial sense if purchased as a standalone policy since the premium's annual cost will roughly equal what you would pay anyway for such visits.
2. Accident
Accident policies provide coverage for things such as getting hit by a car or ingesting something poisonous. Since they do not provide coverage for illness and disease, they are not commonly purchased except if you have an older animal where the premiums for comprehensive coverage are simply too high due to age.
3. Comprehensive (which includes accident and illness)
Comprehensive coverage is the most extensive and, depending on the company, may include a wellness rider attached to it. Understandably it is also the most expensive of the three, with the average annual premium for dogs costing $585.40 and $349.93 for cats in 2019, according to the North American Pet Health Insurance Association.
This coverage type will often cover accidents and the more costly care for cancer, surgeries, prescription drugs, dental illness, and diagnostic and emergency room visits.
98% of policies written in the United States are comprehensive, with the vast majority of those for dogs.
Regardless of which plan you choose, doing your homework on what is and is not covered is critical. There are many more exclusions with pet insurance than there are with regular health insurance. You will want to carefully review the insurance company's policy for the section that lists explicitly what situations they do not cover or exclude.
Within the exclusion section, specific things to look for include the waiting period, preexisting medical conditions, bilateral conditions, and preventable diseases. Every company handles these exclusions differently, so knowing what you are purchasing before signing up is essential.
Despite the peace of mind insurance can bring when are furry members of the family fall ill, many pet owners either feel they do not need it or find the monthly premium too costly. One way to possibly get pet insurance at a lower cost is to see if your employer offers it as a voluntary benefit.
According to a Society for Human Resource Management Survey, 11% of companies provided this perk in 2018, up from 6% four years earlier. Pet insurance companies offering policies through corporate benefits packages save on marketing costs allowing them to offer discounted premiums.
Credit cards designed specifically for veterinary bills are one potential alternative to insurance. The cards allow you to spread out the cost of expensive procedures over time, often with no interest charges if you pay within the allotted period. CareCredit is a popular choice in this area, and you can visit CareCredit.com to see their terms and which vets in your area accept the card. Many veterinarians find this to be a more financially sensible solution than overpaying for pet insurance.
For people feeling overwhelmed by their pet's cost, The Humane Society has put together a helpful list of resources covering everything from spay and neutering to crowdfunding solutions specifically dedicated to pet owners.
Lastly, an often-overlooked option is to simply budget a certain amount each month in a separate account earmarked for future pet medical expenses. A vet budget is a smart choice for people who find paying a monthly insurance premium is not for them but still want to protect against any unforeseen large medical expenses while still having access to the funds in case of a more pressing need.
Hopefully, it never happens, but if your pet runs into a severe health issue, a comprehensive pet insurance policy will likely pay for itself. On the other hand, wellness only policies will often not be worth the annual premiums when you do the math. There are many moving parts to buying pet insurance, and doing so may not be right for everyone's situation and every animal. However, with the cost of veterinary care only projected to increase, having a plan to protect these important family members is smart for everyone.
Author’s Bio
Joseph Goldy, CFP®, is a wealth advisor and CERTIFIED FINANCIAL PLANNER™ at Highland Financial Advisors, LLC, a fee-only fiduciary wealth advisory firm based in Wayne, New Jersey.
Joe specializes in working with newly independent women because of divorce or losing a spouse. He understands firsthand the value of having a clear financial picture pre- and post-divorce and a plan to restate goals as a single person. When he is not helping clients, Joe enjoys spending time with his two sons outdoors and volunteering to help raise money for Type 1 diabetes organizations.