A Financial Planner’s Take on Pet Insurance

If you’re like me, your pet is part of your family. My dog Kylie is a huge part of my life. I do everything in my power to keep her happy and healthy and I am always trying to make the right choices to help her live a long life. Admittedly, she sees her doctor more than I see mine. In fact, I’m sure Kylie’s vet has probably figured out that he could recommend any number of expensive tests or treatments and I would agree without question. Lucky for me, he doesn’t. I know that I am not the only one who feels this way about their pet- a lot of people would go to great financial lengths to care for their best friend. So, does having insurance for your dog or cat make sense? Sometimes, but I have chosen to go without.

Pet Insurance Basics

First, there are a few things that you should understand about pet insurance. It is similar to health insurance for people, but there are some differences. Generally, vet bills are only covered if your pet is sick or injured. Routine check-ups and vaccines are usually not covered, although some plans have features you can opt into that may cover routine care- at an extra cost. You have to be aware of the type of plan you are purchasing- there are some plans that only cover accidents, like if you pet is injured from being hit by a car, but will not cover illness such as cancer or infections.

Pet insurance plans typically come with a list of exceptions, exclusions, and requirements. Because it is difficult to insure a pet 14 or older for illness, accident insurance may be your only option if you have a senior pet. Pre-existing conditions are often not covered, though some companies will if the condition has been cured for some length of time. If your pet has had any illnesses in the past, you will want to verify that it will be covered in the future if it returns.

Pet insurance only covers vet costs, it does not typically include any liability coverage. You need to make sure your dog is covered on your homeowners or renter’s policy for liability that could arise from a bite. Even if your pet has never had any aggressive history, you should make sure it is not excluded on your homeowners or renter’s policy. According to Insurance Journal dog bites are the most common liability claim on homeowners’ policies representing about 33% of all liability claims.

Lastly, with most companies, premiums tend to rise as your pet gets older. Pet parents sign up for policies when their fur baby is young. According to an article in The Washington Post about pet insurance a dog insured through Pets Best would be $35 a month as a pup. If the owner keeps the policy until he turns 12, the premium is likely to increase to $149 a month. That adds up to almost $1,800 a year in premiums for a senior dog. If you take the total amount this owner would have paid over the dog’s life in premiums it adds up to more than $11,000 over the first 12 years of the dog’s life. These numbers are also in today’s dollars, so inflation of veterinary care costs has not been accounted for. You are more likely to make costly claims as your pet ages, but with rising premiums owners are also more likely to cancel policies as their pet enters these years.

Pet Insurance

To Insure or Not to Insure?

In many cases, insurance is necessary and a great way to protect you or your property, but it is not the only way to accomplish that goal. Insurance protects against a financial loss that is caused by a risk. When you buy homeowners insurance you are protecting your house from many different risks – hurricanes, wind, hail, fire, theft, etc. If you experience any covered peril your insurance company will compensate you for your loss after you pay the deductible. When considering whether or not to insure a specific risk you have to evaluate the likelihood or the frequency of that risk occurring and what the financial impact would be. If the loss would be an amount that you can handle financially or would be able to with some planning, insurance might not be your best option.

Why I Don’t Have Pet Insurance

I think some people who know me would be surprised by my lack of pet insurance. In my opinion, it is not necessary for a lot of pet owners and there are better ways to pay for your pet’s healthcare needs, it just takes a bit of planning.

It all starts with an adequate emergency fund. It’s standard for a financial planner to recommend 3-6 months of fixed expenses be kept in cash. This money needs to be safe and easy to access in case of an emergency. The exact amount varies from person to person. A single income household should shoot for six months, but maybe a couple with two steady incomes might be okay with three.

Okay, but what does this have to do with insuring your pet? If you choose not to purchase pet insurance you are choosing to self-insure, which makes financial sense when you have an adequate emergency fund. Although not cheap, pet healthcare is not as expensive has human healthcare. An article featured on CBS News on the costs of pet cancer tells us that many treatments for pet cancer are less than $10,000. Of course, these numbers vary case by case and certainly can be higher, but when you compare it to how much human cancer care can cost it seems much more manageable.

Vet bills are a risk that you may be able to self-insure with proper planning. Compared to human health care costs, where the deductible on a health insurance policy is potentially more than the highest vet bill you’ll ever see for a pet, the health care costs for pets are relatively low. Self-insurance isn’t possible for my own health because it doesn’t take long for a hospital stay to creep up to 6 figures.

Planning for Large Vet Bills

How you plan for your pet’s vet bills can be accomplished in different ways. You can have a separate account, or just earmark part of your emergency fund for a potentially large vet bill that may or may not come in the future. You may even feel that a fully funded emergency fund based on your fixed expenses is enough to cover your pet as well without having an extra amount set aside specifically for a pet illness or accident. Again, there are a lot of personal circumstances and preferences that go into planning for a pet emergency. The key is to have a plan, so you don’t have to use a credit card or some other type of debt that cannot be immediately paid off.

When Should You Get Pet Insurance?

There are situations where pet insurance has a place in a financial plan. Peace of mind is a great reason. If you find yourself worrying about your pet and your ability to pay for life saving care, then pet insurance might be a good idea. I would also recommend pet insurance if a client did not yet have their emergency fund fully funded or they were currently saving toward a short-term financial goal, like buying a home, that could be derailed by large vet bills.

Should I Buy Pet Insurance

Including your pet in your financial plan is a good idea and is becoming more common. Whether or not pet insurance is right for you depends on your personal financial situation.  Talk to your financial planner about your concerns regarding your pet financially and they can help integrate your furry family member into your plan.