What Is Pet Insurance?

Pet insurance is an insurance policy bought by a pet owner which helps to lessen the overall costs of expensive veterinary bills. This coverage is similar to health insurance policies for humans. Pet insurance will cover, either entirely or in part, the often expensive veterinary procedures.

As with human health insurance, there is usually a deductible which is an out-of-pocket expense before the coverage begins. Most providers will base the premium payment on the average cost of veterinary care in the owner's region. Also, the policy may not cover all veterinary procedures.

The pet insurance industry first came to prominence in Sweden.

Costs of Veterinary Care

The connection between humanity and animals stretches back into the dawn of history as humans have taken them into their homes and their hearts. In many cases, the pet owner's view of their pets in the same way as they see their children. Progress in Veterinary Science allows owners to seek out many procedures for their animals which were previously for humans only. These procedures can be expensive. As CNBC reported, PetPlan states the average cost of an emergency veterinary treatment runs between $800 and $1,500 for cats and dogs.

Primary pet care includes annual exams and vaccines, blood work and dental cleanings. However, there is explosive growth in specialized areas of pet care such as Neurology and Oncology. Also, pets may have medical emergencies, just like their human owners. PetCareRX.com lists the average annual examination cost between $45 and $50, and vaccines run around $18 each.

For some potential pet owners, the prospect of high medical expenses can be a deterrent to adopting a pet. Additionally, for those who do adopt, the possibility of expensive procedures and medicines can lead to a decision to put a pet down, known as “economic euthanasia.” 

The Cost of Pet Insurance

To help with yearly costs and unexpected emergencies, a pet owner can buy a policy which will save some out-of-pocket expenses. As with human healthcare insurance, a pet owner will pay a yearly or monthly fee known as the premium. Some of the factors impacting the cost of pet insurance include:

  • The coverage offered
  • Type of pet insured
  • Age of the animal
  • Geographical location of the pet
  • Associated indoor and outdoor risks
  • The term or length of the policy
  • The company which underwrites the insurance

As reported in The New York Times article mentioned above, NAPHIA states the average cost for pet insurance in the United States in 2018 was $516 per year; and the average paid claim was $278. NAPHIA estimates the total value of the pet insurance market in North America coming in at US$774 million between 2013 and 2014.

Insurance will not cover the full amount of all medical treatment, but most companies advertise that they offer up to 90% coverage on many procedures. For young pets who typically only need yearly check-ups, the cost of insurance may outweigh the cost of services. However, should an emergency arise, the cost of veterinary care could surpass the insurance premium. Also, since senior pets needing more procedures, the coverage could save money, whether there is an emergency or not.

Policies will vary by provider, but most cover necessary veterinary surgeries, medication, diagnostic tests, dental care, prescription foods and supplements as well as hospitalization.

68%

The number of American households that own a pet, according to the 2017-2018 National Pet Owners Survey.

History of Pet Insurance

The first offerings of pet insurance in the United States came in 1980, but its use in other parts of the globe stretches back to 1890. Canine television star, Lassie, became famous for having her owners buy a policy for her care in 1982. The insurance covering the Rough Collie's health and well-being and came from Veterinary Pet Insurance (VPI).

Nationwide sold its first pet insurance policy in 1982 under its subsidiary Veterinary Pet Insurance Co.

Since that beginning, the popularity of the product has grown. According to the North American Pet Health Insurance Association (NAPHIA), and as reported by The New York Times more than two million pets were insured in 2017. Further, the articles explain the 2017 number represents a rise of 17% from the 2016 figures.

Key Takeaways

  • Pet insurance is a policy purchased by a pet owner to offset the overall cost of their animal's medical bills.
  • Similar to human health insurance, pet insurance relates specifically to pets and veterinary costs.
  • There may be an out-of-pocket deductible payment before a plan pays a percentage of covered procedures.
  • Cost and coverage vary based on many factors.

Real World Example

Even a healthy pet has necessary expenses that a new owner must cover. Consider this hypothetical example. When the Fosters adopted Rufus, an adult rescue dog, they knew that they would have some expensive first-year costs. They knew the dog would need to be examined by a vet (up to $90), spayed or neutered (up to $200), given blood work to test for general health and typical diseases (up to $90 per test) and given vaccines ($20 to $150 in the first year and $100 each year after). In total, the Fosters would need to shell out between $400 to $550 for their new pet in its first year in their home. If the pet incurred any other issues during the year, such as more blood work, medication or an emergency visit, the costs would end up being even higher, potentially more than $750 per year. Since the average price for pet insurance in 2017 was $516 per year, paying the insurance in the first year of owning Rufus made sense to the Fosters.

But in year two, Rufus' general costs were expected to be a lot lower: the annual check-up (up to $90), general blood work (up to $90) and second-year vaccines (around $100), for a total of up to $280. The Fosters realized that there was a risk of Rufus having an emergency that would cause them to spend more than the estimated $280, perhaps even more than the $516 it cost to get yearly insurance but decided to forego the insurance anyway since Rufus was a generally healthy dog.