Key Takeaways
If you felt sticker shock the last time you visited the vet, you’re not alone.
Like all forms of insurance, pet insurance comes down to how much risk you’re willing to take.
Premiums vary by age and breed. Look carefully at your annual deductible, reimbursement percentage, and reimbursement amount.
There are also ways to self-insure for your pet if you’re financially disciplined.
My wife and I recently brought home an eight-week-old puppy. She’s a very playful, affectionate, and mild-mannered Bernese Mountain Dog. I’m now understanding how people become so attached to their pets. As part of our regular client reviews, we’re always keeping tabs on major events in their lives – and adding a pet to the family is one of them. Naturally, we want to do whatever we can to protect them and help them grow.
If you’ve taken your pet to the vet lately and almost fainted when you got the bill, you’re not alone. More and more clients have been asking if pet insurance makes sense as part of their overall risk management plan and like so many things in life, the answer is “it depends.”
When it comes to pet insurance, there are an awful lot of options out there. Just know that most of the mainstream providers of (human) health insurance and property & and casualty, don’t play in the pet insurance space. So, pet insurance is hard to bundle with your other coverages.
According to the North American Pet Health Insurance Association (NAPHIA), the average insurance for dogs is closer to $53/month. However, premiums can vary widely, even for healthy puppies. As with all of your insurance coverages, there are different levels of risk that everybody's willing to take for pet insurance. Everybody wants the best for their pet, but how would you feel if they got seriously injured or had a life-threatening disease? How much would you be willing to cover out of pocket? Doing so can be extraordinarily expensive.
Self-Insure
My wife and I ultimately decided not to get pet insurance. Instead of paying the premiums every month, we set up a high-yield savings account. Every month, we put the money that would have gone into premiums into the savings account where they can compound every year. Since premiums are most likely to rise each year, if we increase our monthly contribution at the estimated rate of inflation each year, we should be able to save $10,000 to $12,000 in eight or ten years (our pet’s estimated life expectancy). We can then use that money if she needs surgery or has some life-saving treatment.
Of course, there’s a big risk to this strategy: what if she gets injured early in life and needs surgery? Or what if she needs life-saving surgery later in life and the cost exceeds what we’ve saved up in our pet’s healthcare savings account? We'll have to decide at that point whether it’s worth performing the surgery. If so, we’ll most likely have to pay those costs out of pocket. But those are risks we were willing to take.
Pet insurance
But many of you might want more peace of mind and not have to worry about what happens if your pet gets seriously ill or injured badly enough to need surgery. Or you just might find it too cumbersome to remember to make monthly contributions to your self-funded health savings account for your pet. In those cases, conventional pet insurance might make sense. On top of the monthly premiums, you’ll likely have a deductible, too, but you won’t have to worry about facing a $10,000 surgery bill from the vet or animal hospital.
It’s best to get insurance for your dog or cat as soon as possible – ideally when they’re still puppies or kittens. Most insurers will allow you to start a policy when your pet is as young as eight weeks old. Insuring your pet at a young age can allow for a broader range of coverage and lower premiums. Pet insurance plans are typically reimbursement-based. That means you pay vet bills upfront and submit a claim to the insurance company. A few companies can pay the vet directly, which helps keep your out-of-pocket payments low.
Note: each breed has a different life expectancy and a different set of potential health issues later in life ranging from cancer to hip dysplasia. The pet insurance companies, of course, have actuarial tables for these eventualities so you can expect your premiums to increase every year as your pet gets older. That being said, premiums are state-mandated, so they can only go up a certain amount each year.
According to Forbes, here are some of the major carriers of pet insurance.
Another caveat with pet insurance is that there are no mainstream carriers and there is no rating agency (such as Moody’s or AM Best) to audit them, like there is for human life insurance and property and casualty insurance. As with long-term care for humans, there’s no guarantee your pet insurance provider will still be around many years down the road when you need them most.
If you’re leaning toward traditional pet insurance, we have found there are three things that they allow you to adjust on your declarations page:
Your annual deductible. Which we found could be anywhere from $100 to $1,000 a year.
Your reimbursement percentage. You can select anywhere from 70% to 90% for the reimbursement percentage meeting the deductible.
Reimbursement limit. The maximum reimbursement range is typically in the $5,000 to $10,000 range, but some carriers will offer unlimited – at the right price range.
Of course, increasing the coverage in any of these areas will also increase the premium. We all want what’s best for our furry friends. So how do we ensure that they’re safe and healthy in the long term? It comes down to risk tolerance. Just like any other coverage, we purchase pet insurance with the hope we never use it. Insurance gives us peace of mind knowing we don’t need to worry about a large unexpected medical bill in our pet’s life. Whether you decide to insure or self-insure, make sure you have a plan in place in case the unexpected happens.
Conclusion
If you or someone close to you has questions about pet insurance or other risk management issues, please don’t hesitate to reach out. We’ve helped many clients like you in similar situations.
RYAN A. DUNN, CFP®, is a Wealth Manager at Novi Wealth Partners.