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Table of Contents

How Does Pet Insurance Work?

It functions more like property insurance than health insurance

According to the 2021-2022 American Pet Products Association (APPA) National Pet Owners Survey, 70% of U.S. households own a pet, which equates to nearly 90.5 million homes.

These households spent a total of $123.6 billion in 2021 and $103.6 billion in 2020, spending more every year since 2018. Veterinary care was the second-largest category of pet owner’s spending in 2021, amounting to $34.3 billion, or almost 30% of annual spending.

Americans have taken notice of the rising cost of veterinary care. More than 4.41 million pets were covered under a pet insurance policy in 2021 in the U.S., at a collective cost of $2.6 billion. It’s a relatively new industry: It wasn’t until that famed canine Lassie first received a pet insurance policy in 1982 that pet insurance became a formalized option.

Still, according to the North American Pet Health Insurance Association (NAPHIA) latest data, "since 2017, the average annual growth rate of insured pets is 21.5%."

Finding the best pet insurance depends a lot on what your pet situation is and what kind of coverage you’re looking for. Despite its growing popularity, only 25 companies offer pet insurance in North America in 2022, and 99% of them are NAPIA members. Here’s what you need to know.

Key Takeaways

  • Pet insurance functions more like property insurance than health insurance.
  • Unlike health insurance, the policyholder must pay for their pet's healthcare directly, then be reimbursed by the insurance provider.
  • Pet insurance never covers preexisting conditions.
  • Pet insurance is usually only financially rewarding in the event of serious health mishaps that bring steep veterinary bills.
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Advantages of Pet Insurance

You love your pet like a member of the family, but the insurance industry sees Fido or Fluffy more as property. That’s why pet insurance functions more like property insurance than health insurance. Still, before you remind somebody that your pet isn’t a piece of property, understand that this designation works in your favor. Reading and comprehending the policy is a cakewalk compared with health insurance policies written for humans. Consider these advantages:

  • Choice of Vet: As long as the vet is licensed, pet insurers won’t tell you whom you can and can’t see. There are no out-of-network doctors such as those your own health insurance policy probably dictates.
  • Simple Policies: Most companies have only three tiers from which to choose. There is accident-only (basic coverage); accident and illness (comprehensive coverage); and wellness coverage, which is for preventative procedures only and doesn't cover emergencies.
  • Cheap Premiums: Insurance costs vary with coverage and policy but, in general, wellness coverage costs about $10 per month, accident-only coverage runs about $11 (for cats) and $20 (for dogs) per month, and accident and illness coverage averages about $29 (for cats) and $49 (for dogs) per month. Of course, the cost depends on a host of variables, including breed and age of the animal, where you live, and the options you choose as part of your policy.

If you understand insurance-speak, you can figure out a pet insurance policy. You will pay a monthly or an annual premium, a deductible (a certain amount before the policy kicks in), and possibly a co-pay. Deductibles can range from $50 to $250 but to save money on the premium, high-deductible plans are available. Co-pays range between 10% and 30% of the cost.

There is one major difference compared with many human healthcare policies. The first person to pony up the money is you—not the insurance company. In other words, as the sign at some doctors’ offices says, “Payment is due at the time of service.” After you pay, you file a claim with your pet insurance provider and wait for a check.

Some veterinarians may allow you to forego payment until the insurance company pays its portion. However, before you agree to that high-dollar procedure, make sure you’re clear about the method of payment.

4.41 million

The number of pets insured in North America in 2022, according to industry reports. That represents coverage on just 3.89% of all pet dogs and 0.95% of all pet cats in the U.S..

What to Watch for

First, if your pet has preexisting conditions, your policy may not cover them but they have to disclose that information to you. In August 2022, the National Association of Insurance Commissioners passed the Pet Insurance Model Act, to set regulatory standards for the growing pet insurance industry. One of the main elements was related to preexisting conditions, stating that responsibility of proof for preexisting condition was on the insurer and limits are placed on how insurers can deny those claims. Also, any condition covered under the policy cannot be considered a preexisting condition upon policy renewal. Note, however, that NAIC is a regulatory support organization governed by chief insurance regulators from all 50 states, the District of Columbia, and five U.S. territories, and does not have legislative powers.

Next comes the waiting period. You can’t take out pet insurance when you learn that your pet requires a costly procedure. Insurers know that trick. While it may vary by state, waiting periods may not exceed 30 days and there is no waiting periods allowed for accidents. The insurers must disclose their waiting period policy before the consumer purchases the policy. Also, neither waiting periods nor veterinary exams are allowed as conditions for existing policy renewals.

Ask about maximum payouts. These might include maximums per incident, per year, or over the life of the policy. Generally, the highest-level policies have the highest payouts. 

Finally, most policies will increase your premium to account for rising costs and the condition and age of your pet. However, some companies do not. Ask about rate increases before signing the policy.

Remember that pet insurance, or any insurance for that matter, isn’t designed to turn a profit (other than for the insurer). You purchase insurance to protect against catastrophic events and shouldn’t expect to make money.

If you're considering pet insurance, we've reviewed the best providers here.

Is Pet Insurance Worth the Cost?

According to one well-respected consumer magazine, the answer is it depends. In 2015, Consumer Reports looked at policies from three major insurers in the pet insurance industry—Embrace, Healthy Paws, and Trupanion—and compared them with a lifetime of vet bills for Guinness, a 12-year-old Labrador mix from Westchester County, N.Y., and Freddie, a nine-year-old mixed-breed cat from Fairfield County, Conn. The magazine found that for Freddie, who was reasonably healthy, only one policy would have paid out more than his healthcare cost. However, for Guinness, who was diagnosed with skin cancer, all three plans would have been worth it.

The informational website ConsumersAdvocate.org in 2017 found that pet insurance for wellness care isn’t worth the cost. According to the report, the cost of routine care is usually negligible, especially early on in the life of a pet, and the yearly insurance cost is more or less what you can expect to pay directly to a vet.


What Isn't Covered by Pet Insurance?

Exclusions vary from company to company. They're usually listed in a sample policy available on company websites. The big one, pre-existing conditions, is the reason the vast majority of claims are denied.

Pet owners should ask whether a pet insurance company will review their pet’s medical record and let them know up front if there are any conditions that they consider pre-existing and won’t be covered.

Unfortunately, not all companies do this automatically. So be sure to ask a company for a review before you choose it to insure your pet.

Is There Pet Insurance for Exotic Animals?

If you own a nontraditional pet, your choice of insurers might only be one, maybe two. Most pet insurance policies for dogs and cats. If you have a bird, an iguana, or another kind of pet, check out Nationwide pet insurance, which is probably the largest and most well-known provider of exotic pet insurance. 

The Bottom Line

When something really bad happens, insurance is worth the years of premiums you paid. For routine or relatively minor problems, you’re probably better off putting the monthly premium into a kitty or doggy emergency fund to pay for those unexpected bills. If you elect to purchase pet insurance for catastrophic care, get the highest deductible you can comfortably afford.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. American Pet Products Association. "Pet Industry Market Size & Ownership Statistics."

  2. North American Pet Health Insurance Association. "Section #1: Gross Written Premium."

  3. North American Pet Health Insurance Association. "About the Industry."

  4. North American Pet Health Insurance Association. "Section #2: Total Pets Insured."

  5. Pawlicy. "Are Pet Wellness Plans Worth It For Routine Care?"

  6. North American Pet Health Insurance Association. "Section #3: Average Premiums."

  7. National Association of Insurance Commissioners. "Pet Insurance."

  8. National Association of Insurance Commissioners. "A Regulator’s Guide to Pet Insurance," Pages 18-19.

  9. North American Pet Health Insurance Association. "State of the Industry Report: 2022."

  10. National Association of Insurance Commissioners. "NAIC Passes Pet Insurance Model Act."

  11. National Association of Insurance Commissioners. "Pet Insurance Model Law," Pages 2, 4.

  12. National Association of Insurance Commissioners. "About NAIC."

  13. National Association of Insurance Commissioners. "A Regulator’s Guide to Pet Insurance," Page 19.

  14. Consumer Reports. "Is Pet Insurance Worth the Cost?"

  15. ConsumersAdvocate.org. "Is Wellness Pet Insurance Worth It?"

  16. National Association of Insurance Commissioners. "A Regulator’s Guide to Pet Insurance," Page 5.

  17. Nationwide. "Pet Insurance FAQs: Animals We insure."

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