How Pet Insurance Works: Everything You Need To Know

In this article, we will discuss what pet insurance is and how it works. By carefully selecting an appropriate policy for your furry family members, you can avoid unexpected medical bills that cost thousands of dollars.

Over the last 20 years, my family has had at least three pets at any given time, all of which have dealt with a prohibitively expensive and unexpected accident or injury. After losing thousands of dollars on these unexpected costs, we quickly learned the importance of investing in insurance, and you should too.

Pet ownership has increased over the last few decades, with nearly 70% of American households including a family pet. On the other hand, the total number of uninsured pets has been rising at a rate of 22% each year.

The cost of pet ownership has increased steadily during that time frame to include, as of 2023, a total of $143.6 billion dollars being spent on:

1. Pet food and treats, including food purchased at the Vet, Costco, or online;
2. Pet supplies and over-the-counter medicine;
3. Vet care, including surgery and prescription medication;
4. Other services include pet sitting, pet walking, pet insurance, grooming, boarding, and training.

Pet insurance is a way to offset some of these costs, such as unexpected vet bills for your pets (vet visits can cost between $850 to $1,500.).

While it’s difficult to imagine that your beloved pet would get into an accident, it is estimated that 1/3 pets will require emergency care this year. However, pet insurance is surprisingly affordable and provides protection against high costs for accidents or injuries.

If your policy covers an unexpected accident or illness, you pay for it out of pocket up front, then submit a claim after the fact for reimbursement. According to Forbes, four out of five pets will experience an unexpected emergency at some point in their lifetime.

Process For Submitting A Claim

The process for submitting a claim is fairly simple, depending on the insurance provider you have. In most cases, you can log into your account and submit invoices or receipts online, after which they get processed, approved, or denied, and if approved, reimbursed according to your coverage limits, deductibles, and reimbursement limits.

Policyholders can usually expect to be reimbursed by their pet insurer within 10 business days.

Coverage Limits

All pet policies come with annual coverage limits. This might also be called a reimbursement limit.

Either way, it refers to the maximum amount of money your insurance company will reimburse you in any given year for covered services.

Deductibles

Deductibles are the minimum amount you have to pay out of pocket before any coverage is reimbursed.

Reimbursements Limits

Your reimbursement limit is annotated as a percentage. Insurance companies provide policies with reimbursement limits between 70% and 90%.

Let’s look at an example:

Let’s say you own a five-year-old male Border Collie. You choose an Accident and Illness policy with the following:

• An annual coverage limit of $15,000
• A reimbursement limit of 80%
• An annual deductible of $500
• Your monthly premium is $44.87

You’ve been paying for pet insurance for about two years. So you’ve spent about $1076 in premiums since getting coverage.

Then your dog eats a toy, and you have to pay $4300 for the vet bill. With your annual deductible, you’ll have to pay $500 upfront and 20% of the remaining balance.

$4300 – $500 = $3800 (this is the $500 deductible you have to pay)

$3800 x .20 = $760 (this is the 20% you won’t get reimbursed)

$500 (deductible) + $760 (20% you have to pay) + $1076 (premiums for the last two years = $2336

The result?

Even when considering the monthly premiums you have paid for several years, you save $1,964 on a single pet emergency. The 2023-2024 APPA National Pet Owners survey found that pet owners spend an annual $37 billion on vet care.

What Does Pet Insurance Cover?

You have a surprising amount of control over what is covered under your pet insurance policy, so long as you work with a company that offers riders or additional coverage for things like annual vet appointments and other wellness costs.

Note: Things that are covered will vary based on the policy you choose.

Accidents And Illnesses

Generally, policies will cover accidents and illnesses such as:

• Bite wounds
• Broken bones
• Lacerations
• ACL ruptures
• Allergies
• Seizures
• Digestive issues
• Skin conditions
• Eye disorders
• Hip or elbow dysplasia
• Blood disorders

Testing And Diagnostics

Pet insurance covers testing and diagnostics for qualifying accidents and/or injuries, such as:

• Blood tests
• Ultrasounds
• X-rays
• MRI’s
• CT scans

Procedures

General policies extend to procedures for the same qualifying situations, such as:

• Nursing care
• Hospitalizations
• Endoscopies
• Surgeries
• Chemotherapy

Prescriptions

Some policies will cover the cost of prescriptions if those prescriptions are prescribed by a veterinarian for qualifying accidents or injuries. If your current policy does not include prescription medications, you might be able to add additional coverage for them.

Holistic Care

Many policies will cover holistic care or alternative procedures for qualifying accidents and injuries, including chiropractic care, laser therapy, or acupuncture.

Wellness

If you add Wellness coverage, general preventative care costs are typically included, such as:

• Routine wellness exams (like your annual doctor visits)
• Flea and tick prevention
• Heartworm medication
• Vaccines
• Spaying or neutering

What Does Pet Insurance Not Cover?

The most common exclusions from pet policies are pre-existing conditions, as pet insurers rarely ever cover them.

Common exclusions can be found below.

Breeding Costs

Firstly, pet insurance generally does not extend to breeding costs, even if you invest in additional coverage. Costs can include:

• Basic breeding tests such as X-rays and thyroid tests
• Heart tests
• Health certifications
• Stud fees
• Transportation costs
• Shipping or implantation costs

Cosmetic Procedures

Generally, policies will not extend to cosmetic procedures like prostheses, tail docking, or ear cropping.

Grooming

Most policies do not cover grooming costs such as nail care, hair care, or bathing.

Pre-existing Conditions

Basic pet insurance policies do not typically extend to pre-existing conditions, but you can search for specific policies designed to cover the costs of pre-existing conditions.

Types Of Pet Insurance Plans

There are three basic types of pet insurance plans from which to choose.

Accident Only

Accident-only coverage is the least expensive, and it doesn’t typically come with options for additional Wellness coverage. Accident-only coverage applies to emergency care resulting from accidents (procedures, testing, diagnostics, and care).

Note: Older animals may only qualify for accident coverage once they pass an age threshold. For cats, it is 15 years or older. 

Accident & Illness

Accident and illness coverage covers procedures, testing, diagnostics, and treatment for qualifying accidents and illnesses. This is the most common type of pet insurance and it represents 98% of all policies issued by pet insurers. Additionally, many providers require this plan if you want to add additional coverage.

2022 industry data from the NAPHIA found the average Accident & Illness coverage premiums to be $53.34 for dogs and $32.25 for cats.

Wellness

Wellness plans extend coverage to annual treatment costs. These are not sold individually. They have to be added to a qualifying accident and illness plan.

The table below gives an idea of what each plan type covers:

How Much Does Pet Insurance Cost?

The cost of your pet policy is based on many factors, including the age and breed of your pet, whether they have pre-existing conditions, what your deductible will be, what your annual limit will be, and what your reimbursement percentage is.

In addition, pet insurance costs can slightly vary in cost by state, for example, our experts found that the average cost of pet insurance for dogs in Ohio is $40.17, in Michigan it’s $36.79, in Indiana you can insure your dog for $36.77, whereas dog insurance in Colorado will cost you $47.56.

The NAPHIA’s industry report for 2023 found that the average premium is $32 per month.

Age And Breed

For all pets, age will be a significant factor in the cost. The older a pet is, the more likely they are to face accidents or illnesses, so they cost more.

The breed also plays a determining factor, but more so for dogs than for cats because dog breeds can influence the size of an animal and any hereditary conditions to which they might be at risk.

For example, golden retrievers are highly susceptible to hip and elbow dysplasia as they get older, while pugs are susceptible to brachycephalic obstructive airway syndrome.

• Let’s say you have a brand new, one-year-old female cat. The average cost per month is $23.77.
• Now let’s say you have an older cat, 14 years old. The average monthly cost for pet insurance is $38.28.
• If you have a new puppy, a male, 1-year-old Australian shepherd, you can expect an average cost of $58.31 per month for pet insurance.
• The average monthly cost for a 14-year-old Australian Shepherd male is $152.13.

Deductible, Annual Limits And Reimbursement Percentage

The deductible, annual coverage limit, and reimbursement percentage you choose will affect your monthly premium. However, out of all of these, the deductible has the biggest impact. Adjusting your deductible from $100 to $250 can result in significant savings for your monthly cost.

• A cat with a $100 deductible might cost $30 per month, but a $250 deductible will cost only $20 per month. This means a $150 difference in terms of what has to be paid out of pocket when an accident or illness occurs. It also means a difference of $120 saved annually.
• A dog with a $100 deductible might cost $77 per month, but a $250 deductible would only cost $40. This means a difference of $37 each month. Using this example, it would only take you 7 months to save up the $250 deductible from the difference in monthly premiums, after which you would continue saving $37 each month.

However, your annual limit and reimbursement percentage also play a role. Using the example of the 1-year-old cat, the table below breaks down these different monthly costs based on fluctuating coverage limits, deductibles, and reimbursement percentages:

Now let’s look at those same breakdowns, but for a 14 year old cat:

Let’s look at the same parameters but for the puppy:

Now, for the older dog:

Most Common Pet Insurance Claims

According to a report regarding Embrace Pet Insurance, one of the top ten pet insurers listed by Forbes, the top five insurance claims were for the following:

How To Find The Best Pet Insurance

Finding the best pet policy will be a personalized process because you’ll have to consider your pet’s current health and breed, any pre-existing conditions, what you can afford for monthly premiums versus deductibles, and what forms of alternative or holistic medicine might be a priority in your home.

Get Quotes

The easiest way to find the best pet insurance is to get quotes online. Online quotes give you an idea of the cost based on the type of pet you have, their breed, age, and health.

You can easily change parameters when reviewing different quotes so as to produce a side-by-side comparison of the same animal but with different coverage limits, reimbursement percentages, and deductibles.

Look At Coverage

Once you have your quotes, you need to look at things like:

1. What’s covered in the policy, especially if your pet breed has a high risk of specific conditions
2. The waiting period for reimbursement
3. What riders are available, and at what cost
4. Whether alternative medicine is covered
5. What mental health treatment is included, such as separation anxiety
6. Whether dental care costs are included

If, for example, your pet has a pre-existing condition, the best pet insurance companies might be more limited. If you have multiple pets, you might be interested in coverage options that provide multi-pet discounts.

The table below shows some unique features and coverage options for a handful of top companies:

Talk To Your Vet And Pet Owners

Don’t be afraid to talk to your vet and ask which companies they prefer working with or which companies other clients recommend. All vets take pet insurance but each may have preferred options.

If you know people who are pet owners, speak to them about the companies with whom they’ve had the most success, especially if their pets share similar concerns, pre-existing conditions, or risk factors.

Is It Worth It?

Pet insurance is a great idea for anyone who likes to keep tabs on their spending and avoid painful and unexpected medical bills.

According to the 2023-2024 APPA National Pet Owners Survey, pet ownership is almost evenly spread across each generation, indicating that insurance savings could help every age group.

Accidents, injuries, and illnesses happen unexpectedly, but the bill will be a lot more unexpected if you don’t have pet insurance.

Two years ago, my family had a pet emergency. We didn’t have pet insurance even though we had four pets. This emergency coincided with a continuing gut feeling that we should consider looking into pet insurance soon.

Below is a breakdown of our initial pet emergency invoice:

If you’re like me, bad luck doesn’t strike just once in the family; it strikes thrice.

The next bill was for the bulldog. She swallowed something she wasn’t supposed to. The cost of removing the wad of deftly defied “drop-its” and “spit-it-out” was $5000!

(So much for that upcoming vacation)

So in two months, we had to pay $7,630 out of pocket for pet emergencies and illnesses.

Thankfully we invested in pet insurance that same month, so when bad luck struck us the third time, it only cost us our premium for the first month, $180.

Pet insurance can help you avoid missing your upcoming vacation because of a vet surgical bill.