Pet insurance is often described as "health insurance for pets." It’s a relatively accurate description: pet insurance does cover vet bills when your pet has an illness or gets into an accident. But pet insurance doesn’t work exactly like health insurance, and you may find yourself paying more of your vet bill than you expected if you’re not paying attention.
First: a quick vocab lesson
Premium – a.k.a. how much money you’re paying every month (or annually) to keep your pet insurance policy active, or "in force"
Deductible – the amount you need to pay before insurance starts covering your expenses
Reimbursement rate – the percentage of your bill that your pet insurance company will pay for
Payout limits – the maximum amount a pet insurance company will pay per year, per incident, etc.
These words determine how much you pay
Premium is the easiest to understand: it’s a monthly bill that you’re paying every month so that you can keep your pet insurance active. But what happens once you actually need to use your pet insurance policy? That’s where things start getting a little more complicated.
Pet insurance policies usually feature one of two types of deductibles: a per-incident deductible or an annual deductible.
Per-incident deductible: Every time you need to use your pet insurance policy, you need to pay a set amount before your pet insurance kicks in. For example, let’s say you get a bill of $200 because your dog ate a sock and your policy has a per-incident deductible of $50. You need to fork over $50 to your vet to cover your part of the bill. Let’s say your dog develops a few complications from the surgery and needs to go back to the vet. You’ve already paid your deductible, so no need to pay another $50 deductible. But if your dog decides to chow down on two jars of vaseline? Separate incident, another deductible.
Annual deductible: You have one big deductible for the whole year, no matter how many vet bills you need to get covered. For example, let’s say you get a bill of $200 because your cat ate an earing and your annual deductible is $600. Guess what – you’re paying for the entire bill! Let’s say that your cat gets sick two months later, and you need $1200 worth of vet care to figure out what caused it (hint: another earing). You only have to pay a $400 deductible on that bill. If you have any other vet bills during the year, you won’t pay any deductible.
The only way you can tell if one of these deductibles will be better for you and your pet is if you can see the future. Will your pet have a lot of incidents this year, making a per-incident deductible really expensive once it all adds up? Or will they only have one or two illnesses, making a per-incident deductible the smarter choice?
More important than trying to predict the future is choosing a deductible that you feel comfortable paying.
Pet insurance is different from health insurance in a lot of ways, and one of the biggest is that your pet insurance company does not pay the vet directly. Instead, you pay the vet and your pet insurance company will reimburse you.
But pet insurance companies don’t reimburse 100% of your bill – typical rates vary between 70 and 90%.
So that makes figuring out how much you personally owe the vet more difficult than just subtracting your deductible from the total bill.
Instead, you have to do a little math:
Take your total claim
Subtract your deductible, if applicable
Multiply the result by your reimbursement rate
At the end of all that, you’ll have the amount your pet insurance company should reimburse you.
Usually, the higher your reimbursement, the more you’ll pay in monthly premiums.
Some policies will limit the amount of money you can be reimbursed for claims. (There are policies with no limits – if payout limits concern you, make sure you read up on your potential policy.) There are typically five types of payout limits:
Maximum payout per body system: Examples of body systems include the digestive system, musculoskeletal system, and nervous system. Once you’ve hit the limit for a particular system, you will not receive any more reimbursements for bills related to that body system whether it’s an illness or an injury. We think that any policy with a maximum payout per body system is a bad policy – frequently, when a pet gets sick, it’s always related to a single organ or body system. You don’t want to get shortchanged late in your pet’s life.
Maximum payout based on a schedule of benefits: This is one of the more confusing limits. Your pet insurance company will have something called a "schedule of benefits," which looks less like a calendar and more like a big pricing list. The schedule of benefits will have the maximum amount your pet insurer will pay per condition – for example, a maximum of $500 for allergies. Typically, this limit resets annually. We think this one of the worst payout limits. Besides being confusing, it has the opportunity to shortchange pet parents in their hour of need.
Maximum payout per incident: This is the maximum amount a pet insurer will reimburse you for a particular incident. Think carefully about policies with a maximum payout per incident: if your pet needs lifesaving surgery for cancer, this incident will cost you thousands of dollars. Make sure your maximum payout per incident is high enough to cover the worst-case scenario.
Maximum payout per year: This is the maximum amount your pet insurer will pay you in a calendar year. As long as this limit is high enough to cover a worst-case scenario (limits can run upwards of $20,000), we believe this is okay.
Maximum payout per lifetime: The maximum amount your pet insurer will pay during the entire lifetime of your pet. Again, as long as this limit is high enough to cover a few very expensive procedures (some limits can run upwards of $200,000), we believe this is okay.
In general, we’d encourage consumers to seek out a no limits pet insurance policy. However, if you can’t afford a policy with no limits, you need to consider exactly when those limitations will come into effect.
Are you prepared to cover your portion of the vet bill?
No matter what kind of pet insurance policy you have, your insurer won’t cover 100% of your vet bills. Pet insurance also rarely covers wellness care – i.e., your regular annual vet visit – unless you buy additional coverage.
All of this should tell you that you need to be prepared to spend more than just your regular pet insurance premium in order to protect your pet. You should be able to cover the cost of your deductible and whatever percentage of the vet bill you need to pay. You also need to be aware of payout limits, because you may get stuck paying a lot more than expected if you bump up against those limits.
You also should put money aside for regular vet care: the vaccinations, flea and tick control, heartworm medication, teeth cleaning, microchipping, and other expenses.
Hopefully, you’ll never have to deal with a pet health emergency. But if your pet is unfortunate enough to get into an accident or come down with a serious illness, they’ll rest easy knowing that you’re prepared for the worst.