How Pet Insurance Works
This is the recurring cost of the insurance policy. You pay this amount monthly (or annually in some cases) regardless of whether you make a claim on the policy. If you stop paying the premium on the policy, the coverage terminates (in insurance language, this is called “lapse”).
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2 Types of Deductibles
This is the amount that you’re responsible for, before your insurance coverage applies. You’re probably familiar with deductibles from other types of insurance (health insurance, car insurance, etc.). A pet insurance policy will have one of two types of deductibles…
A per-incident deductible – A set amount is deducted off the top (that you’re responsible for paying) for each incident that requires veterinary care.
How it works: let’s say your policy has a $100 per incident deductible. If your dog eats an entire bag of Hershey’s chocolates, that’s an incident. You pay that $100 deductible for this incident, regardless of how many separate vet visits this requires. Let’s say a month after the Hershey’s incident, your dog gets bitten at the dog park (poor dog!) and requires stitches on his leg. That’s another incident. You have to pay another $100 deductible for this incident.
An annual deductible – Instead of getting applied per incident, the deductible gets applied per year, regardless of how many incidents your pet has.
Let’s continue using the previous example. Assume the total vet bill for the Hershey’s incident was $600. If your policy has a $300 annual deductible, then $300 would be deducted off the top (that you pay), and the insurance company would reimburse on the remainder of the bill. A month later, the dog bite incident costs $500 at the vet. This time, there’s no amount deducted off the top. That’s because you already met the $300 annual deductible on the Hershey’s incident. There would be no more deductibles on any incident for the rest of the year.
You might be wondering which is better to get on your policy: a per-incident deductible or an annual deductible.
The short answer is that neither is really better.
They’re both designed to share costs between you and the insurance company. The important thing is to choose a deductible amount that you’re comfortable paying if the need arises.
However, if you can predict the future:
And can see that your pet will have a lot of incidents requiring vet care over the next 12 months, then an annual deductible is probably better.
Or, if your pet will only have 1 or 2 incidents requiring vet care over the next 12 months, then a per-incident deductible is probably better.
One more important thing to remember about deductibles: if you want a low deductible, you’ll pay for it with a higher premium. It also works the other way: if you’re willing to accept a higher deductible, your premium will be lower. Neither is necessarily better—it just depends on your preference:
Do you want to pay less out of pocket when you actually seek vet treatment for your pet? Then get a lower deductible.
Do you want a lower fixed amount that you pay monthly, and are comfortable with a larger amount you’re on the hook for when you go to the vet? Then get a higher deductible.
This is the rate at which the insurance company covers eligible expenses (after the deductible is applied). Most pet insurance policies have reimbursement rates that range from 70-90%. Higher reimbursement rates will cost you more in terms of monthly premium.
A little equation to help you calculate reimbursement:
Your Deductible = Eligible expense for reimbursement
X Reimbursement rate
= Reimbursement paid to you
Here’s what it would look like for a $3,000 claim on a plan with a $500 deductible and an 80% reimbursement rate:
Heads up! Some pet insurance companies reimburse based on a fixed schedule of costs (you may see it referred to as the "usual and customary charges for the treatment"), rather than the actual vet bill you submit. This helps the insurance company keep prices affordable. Make sure you know how your policy reimburses so you're not surprised!
Limits on payouts
Some policies will limit the amount paid in claims for your pet. (There are also policies with no limits.) Generally, there are five different types of limits on payouts...
1. Maximum payout per body system –This is the maximum amount the insurance company will reimburse for a body system. Examples of body systems include: digestive system, musculoskeletal system, and nervous system. Once you hit that limit for a body system, you will not receive any more money for any injury or illness that relates to that body system.
2. Maximum payout based on a schedule of benefits –This is the maximum amount the insurance company will reimburse, based on a listing of allowances for specific health conditions. For example, the schedule might have a maximum allowance for asthma of $500. That’s the maximum payout you’d be eligible for, per year, for any expenses related to your pet’s asthma.
3. Maximum payout per incident – This is the maximum amount the insurance company will pay out for each separate illness or injury. Once you hit that limit, the insurance company will not reimburse any additional expenses for that incident. For policies that have a maximum payout per incident, the limits can go up to $7,000.
4. Maximum payout per year – This is the maximum amount the insurance company will pay for each twelve-month period on your policy. Once you hit that limit, you’re not eligible for any more money until the next year. For policies that have a maximum payout per year, the limits can go up to $20,000.
5. Maximum lifetime payout –This is the maximum amount the insurance company will pay during the lifetime of your pet. Once you hit that limit, you’re not eligible for any more reimbursement and your policy will be terminated. For policies that have a maximum lifetime payout, the limits can go up to $200,000.
A Word of Caution We don’t recommend policies that have a maximum payout per body system or based on a schedule of benefits. We think these types of limits shortchange pet owners. They’re also confusing, so it’s difficult to understand what you’re buying (which often leads to unhappy pet owners when they file a claim).
Also, make sure you think carefully about policies with maximum payouts per incident. If there is a per-incident limit, make sure it's high enough. An incident could be a single life-threatening event (e.g., cancer or a car accident) that requires expensive, lifesaving care. A very low per-incident limit might actually defeat the purpose of pet insurance, which is to allow you to make decisions about lifesaving care without worrying about the cost.
We think the other two types of payout limits—annual and lifetime—are totally fine as long as they’re high enough to cover a worst case scenario (which can run upwards of $20,000 for certain conditions).
There are also plans with no limits on payouts. These plans provide the greatest peace of mind and are still reasonably priced.