Our pets are many things — companions, protectors, and servants. They are warm and fuzzy. They bring smiles to our faces and joy to our hearts. Our pets are good for our emotional well-being as well as our physical health. Our pets are members of the family that are woven into many of our fondest childhood memories and the memories of families. Pets are all of those things.
They are also expensive.
In 2014, Americans spent $58.51 billion on pets, according to the American Pet Products Association. The largest single expenditure was on food, which totaled $22.62 billion. We spent another $2.19 billion on new pets and a whopping $4.41 billion grooming and boarding our furry friends. But besides food, the biggest component of our spending was the incredible $27.51 billion in health-related purchases. It breaks down as $13.14 billion in supplies and over-the-counter medicines and $14.37 billion in veterinary care.
A Not-So-New Idea
The high cost of pet care is nothing new and neither is pet insurance, which got its start in Sweden with the founding of the Länsförsäkrings Alliance by Claes Virgin in 1892. The alliance began as a means of protecting horses and other livestock and evolved to include household pets like dogs and cats.
It took 90 years for the concept of pet insurance to work its way to North America and the United States, where the first pet insurance policy was written in 1982. The first policy was issued by Veterinary Pet Insurance (VPI), a subsidiary of Nationwide, and it was for that most American of dogs — TV’s Lassie.
The pet insurance industry in the United States has experienced tremendous growth since its debut, with more than 1 million pets insured, according to the North American Pet Health Insurance Association. Its 2014 benchmarking report also points to an increase of 14.6% in the number of pet care policies issued from 2012 to 2013, when 876,441 dogs and 157,542 cats were covered by pet health insurance.
The increase in the number of pet owners seeking the safety of pet insurance has led to an upswing in the number of companies offering it. The pet insurance market is lucrative enough to have enticed retail giant Wal-Mart to test the waters in 2013, when it partnered with Western Financial Insurance to offer pet protection through selected stores in Canada.
Wal-Mart subsequently ended the program. Many wonder if its departure is permanent or if it gathered the information it needed to evaluate the market and will relaunch in grand style. The basis of this belief is the success of outdoor retailer Cabela’s pet insurance product, which it has offered since 2011.
The ranks of providers are also being bolstered by additions from the entrepreneurial class. While graduate students at the Wharton School at the University of Pennsylvania, Chris and Natasha Ashton were presented with a $5,000 vet bill for their cat, Bodey. Natives of the U.K., they acquired the North American licensing rights to Britain’s largest pet insurer, Pet Plan.
Why Get Pet Insurance
The costs of pet health care have skyrocketed in the past decade, not because pets are getting sick or being injured at higher rates, but because the depth and breadth of diagnostic and treatments available to pet owners has exploded in recent years.
The ASPCA estimates the average cost of regular annual recurring medical care for dogs is $235 and $160 for cats, which has increased year over year at about the rate of inflation. The lion’s share of the doubling of costs is for catastrophic care for injured and acutely ill animals.
The American Veterinary Medical Association reports that the cost of veterinary care has more than doubled in the past decade. Very costly procedures like MRI, chemotherapy, and complex surgeries have become more readily accessible for the family pet.
For example, an MRI for a dog once meant traveling to a veterinary medical school for the procedure, but it’s now increasingly available in larger practices in small and medium metropolitan areas. The increase in accessibility has led to an increase in pet owners’ willingness to take greater actions to preserve the health of their pets.
The greater availability of veterinary medicine advances means more less-affluent pet owners are insisting that everything that can be done to maintain or restore their pets to good health be done, and insurance helps to reduce that cost.
The bottom-line reason pet parents most often cite for needing pet health insurance is to protect against the unexpected, such as accidents or sudden catastrophic illness. For many, pet insurance represents a means of eliminating the hard choice of saving an injured pet or having it put down. For example, a dog that is hit by a car could suffer from broken bones and internal injuries that could be treated with surgery, the cost of which could easily be as much as $5,000.
The Cost of Pet Health Care
A 2010 survey by The Associated Press found that a majority of pet owners were willing to spend up to $500 for veterinary care. As costs climbed above the $1,000 figure, fewer than 45% of respondents were willing to shoulder the cost.
Pet insurance companies say their product has the potential to save far more than it costs. The pet insurance company Trupanion lists actual treatment costs of hereditary and congenital disorders, such as:
- Glaucoma: Surgery and long-term medication cost $5,805
- Hip dysplasia: Surgery and long-term medication cost $7,815
- Diabetes: Blood work and long-term medication cost $10,496
Other common illnesses and accidents:
- Surgery to remove a foreign body from a cat: $2,964
- Emergency surgery to treat a fractured pelvis resulting from being hit by a car: $3,717
- Chemotherapy to treat cancer: $5,351
How Does Pet Insurance Work?
The most common misconception about pet health insurance is that it works in the same way as human health insurance. With the latter, bills are paid directly to the provider after any deductibles have been met. This is not the case with pet insurance. Pet owners must pay for the treatment and services first, then submit a claim to the insurance company for reimbursement.
Typically, reimbursement rates range from 70% to 90% of the covered costs after the deductible has been met. In most cases, pet insurance companies provide policyholders with a benefit schedule that lists various procedures along with their reimbursement rate.
Some veterinarians will allow owners with large bills to wait for reimbursement before having to pay. However, this is a decision that is made by individual veterinarians on a case-by-case basis. As a rule, you should be prepared to pay for the care of your pet upfront and wait for insurance reimbursement later.
Unlike health insurance for people, which is regulated by states, pet insurance is almost entirely unregulated. Some states, like California, are considering enacting at least limited regulations, but that is still in the future.
The unregulated nature of pet health insurance means coverage offered by one provider may appear to be the same as that of another, yet be completely different. Beyond general federal and state consumer protections that guard against fraud, the pet insurance consumer is largely responsible for understanding the terms and conditions of coverage.
Types of Coverage
While individual pet insurers may offer a variety of coverage options, they will fall into one of two broad categories.
Lifetime Pet Insurance: This type of coverage provides protection for ongoing or chronic conditions that require care throughout a pet’s lifetime. In most cases, if a condition is claimed during the first year of coverage, it will continue to be covered in future years provided the premiums are paid and the policy remains in force.
These policies always come with payment limits that may include annual, lifetime, and conditional reimbursement caps. It is important to read and understand the limits of any policy you purchase in order to avoid unreimbursed expenses.
Non-Lifetime Pet Insurance: These plans cover the insured pet up to a maximum amount for each listed condition that occurs during the policy year. Once a condition has been treated or the maximum payment for that condition has been reached, it will be excluded from coverage in the future. Payment limits on these policies come in two types:
- No Time Limit: This covers your pet for care up to the maximum payment amount regardless of how long treatment takes. This is helpful if your pet develops a chronic disorder like diabetes that requires inexpensive treatment over the course of many years or a lifetime.
- Time Limited: This type of plan is limited by both a maximum payment and a specified time period, such as the policy year. Reimbursements will stop when either the covered period or maximum payout is reached, whichever comes first. Premiums for this type of policy are usually lower than for similar no-time-limit plans.
A third and more restrictive type of policy is accident-only pet insurance, which covers your pet only for injuries that result from an accident and excludes all types of illness. Accident-only policies are the least expensive and most limited on what they’ll cover.
All pet insurance policies exclude coverage for pre-existing conditions. This includes illnesses and injuries that were already paid for by your current insurer or by a new insurer in the event you switch companies. This exclusion also applies to most conditions that have been identified before you purchased your pet insurance. For example, if you discover your pet has glaucoma and purchase a policy to help with the cost of surgery, your claim will most likely be denied.
Pet health insurance functions like other forms of property insurance, such as homeowners and automobile, in that there are treatments and conditions that are excluded from coverage. Almost all policies exclude coverage for veterinary exam fees, which include those assessed by specialists as part of the treatment evaluation process. Other common exclusions are:
- Spaying and neutering
- Flea and tick control
- Dental care
- Internal parasite control
Other exclusions may be based on breed. For example, many providers will not cover a Shar-Pei for most skin conditions the breed is predisposed to develop. It is important to determine what, if any, breed-specific exclusions apply to your pet.
Shopping for Coverage
Shopping for pet insurance can be particularly confusing because the lack of regulation means there are no uniform coverage standards that all insurers must adhere to. It is up to you to determine which plan’s benefits best match your anticipated needs.
The cost of coverage can range from as low as $15 per month for an accident-only plan up to $150 or more per month. You should not only compare premiums, but reimbursement rates.
Watch Out For…
In addition to general and breed-specific exclusions, there are a few other things to be on the lookout for when shopping for pet health insurance:
- Does the policy place limitations on your ability to renew after your pet has been treated? Limits may include the inability to renew or requiring a substantially higher premium to maintain coverage.
- Deductibles and co-pays should be considered as part of your premium cost when considering the policy’s cost savings.
- Look for extra fees for paying your premium monthly rather than annually, as well as late fees.
Unlike other property insurance or health care insurance for humans, self-insuring for pets is often a viable alternative. After selecting a commercial pet insurance plan that meets your needs, consider the alternative of placing the annual premium cost in a bank account earmarked for your pet’s health care. A premium of just $25 per month equals $3,000 over 10 years, and if the maximum benefit that you may receive from the policy is $5,000, it might be better to self-insure.
The advantage of self-insuring is that if your pet lives a long, healthy life, you will not only have saved the premium cost, but will have earned interest on the money as well. Self-insuring, however, requires discipline to put the money aside each month and to roll it over from one pet to another when your friend passes away.
If you decide to self-insure, do so with the understanding that you are playing the odds that you will be better off financially for having done so, and that there is the possibility you will be confronted with having to make the choice between cost and the life of your pet.