- Christian Bishop CFP®, EA
Pet Insurance, is it Really Worth it?
I am pretty sure that Rory and Gwen do not know that they are dogs, the fact is they are. But they are so much more than pets, they are family. If you have a little fur baby in your life, you know what I am talking about. There is so much love to share both to and from them. Looking into my dog’s eyes, I see unconditional love and complete trust. They depend on us to take care of them, protect them, and provide for them. We take care of all their needs, including food, water, love, fun and health. Generally, most of the health-related care is preventative medicine and immunizations, but occasionally more serious issues can arise. When they do, it can get expensive quickly. While most pet owners pay as they go, more and more are turning to pet health insurance. According to the North American Pet Health Insurance Association or NAPHIA, over 1.8 million pets were insured with pet insurance in 2017.
Like all insurance, there are pros and cons. First, it is important to understand why we buy insurance. Essentially it is to cover financial loss in the case of an unexpected expense. Given that an average surgery for a pet can run from hundreds to thousands of dollars, it is easy to see why people may turn to insurance to cover potential costs. In fact, the number of pets insured in the US is up over 17% in 2017 compared to 2016 according to NAPHIA. While the number of policies continues to grow, is the coverage really worth it?
To determine if pet insurance is worth it, it is important to understand a little more about how the policies work and their costs. Generally, insurance premiums for dogs is higher than cats and the cost of insurance for older animals is higher than the same breed of a younger animal. According to NAPHIA the average cost of accident and illness insurance in 2017 for dogs was $535 per year and for cats $335 per year. Of course, the cost goes up virtually every year and can be twice this amount as your pet ages. While most the insurance is generally sold on a monthly basis to make it more affordable, the premiums add up. For example, if your payment starts at $535 per year and it goes up by 10% per year, the cost could be $1,200 or more per year by the time your pet is 10 years old. Total premiums paid could be around $9,000 assuming only 10% increases. However, recent trends show that premiums are increasing at greater rates than this example. To determine if the cost versus the benefits are worth it, you should look at both the pros and cons of insurance.
Peace of mind. Having coverage for the unexpected accident or illness and potentially saving thousands of dollars is a major potential benefit. Limiting your out of pocket expenses to deductibles and coinsurance (the percentage you pay towards covered expenses) allows you to budget future care.
Options. Different options and choices, such as accident only coverage, are available at reduced premiums. Other options are to have higher deductibles and or coinsurance (the portion you pay after the deductible is met). With higher deductibles and or coinsurance, monthly premiums are generally lower but you can still limit your maximum monetary exposure.
Increasing premiums. Most premiums start lower, but go up as the years go by. As your pet ages, the premiums are likely to increase significantly.
Pre-existing conditions. Generally pre-existing conditions are not covered. Meaning that if there has ever been any medical issues with your pet that has been diagnosed in the past, that injury or illness would not be covered in the future.
Waiting periods. Some insurance companies have waiting periods of up to a year for certain types of conditions before they will pay. Every company is different, so carefully review their policies.
Exclusions. Check the policy carefully as most policies have exclusions of some type. Direct exclusions may include certain types of treatments or conditions. Other indirect exclusions may include excluded diagnostics and follow up visits after a covered expense is paid.
Unused benefit. It is entirely possible that over the life of your pet, you may only have
minor covered events or may never even have a covered event. In this case, most or all
of the premiums paid were for nothing as little or no claims were made.
Looking at both sides, I do not think the cost/benefit ratio makes sense to buy pet insurance for those who can afford to self-pay. With that said, there are some people who may prefer to budget the cost of care for their pet’s potential accident or illness via monthly premiums. Others may not be able to come up with several thousand dollars to pay for a covered procedure that their pet may need. In these cases, the insurance coverage could make sense.
If you are going to buy insurance for your pet, I strongly urge you to shop several different companies and compare coverage. Pay particular attention to not only monthly premium rates, but also exclusions, waiting periods, pre-existing conditions and other important factors. As a general rule, it is also a good idea to buy the insurance earlier in the pet’s life. This is important because waiting may limit your ability to get coverage due to pre-existing conditions the pet could develop and or accidents that could happen. If you are going to buy insurance, a good place to start is by asking your veterinarian if they recommend a company. Then go online to do additional research as there are many resources and options available.
Christian Bishop CFP®, EA