If you have a pet, you probably think of it like family—you provide your fur baby with good food, love and affection, regular exercise, maybe even a special toy (or 12). And because they’re family, you may worry about how to pay for your pet’s health problems and emergencies, such as a broken bone, a swallowed sock, or even cancer.
While some people approach this by starting a pet savings account, others find buying pet insurance to be a more effective way to cover large, unanticipated expenses. But policies can be confusing—in part, due to the newness of pet insurance to the marketplace. It can be hard to determine whether pet insurance is worth it for you. To better understand the argument for getting pet insurance and the factors that influence pet insurance premiums, we spoke to Kristen Lynch, executive director of the North American Pet Health Insurance Association (NAPHIA).
NAPHIA is an industry organization that promotes the growth of the pet insurance industry and sets standards around service, coverage, and transparency for its members. NAPHIA members represent more than 99% of policies underwritten in the U.S.
This Q&A has been edited for length and clarity.
Benefits of Pet Insurance
Let’s start at the beginning: Who should get pet insurance and why?
People who think their pet is a priority and want to be able to provide them with the best care; they want to be proactive about it.
I know that my pet will get sick, will have accidents, or will eat something in the yard, no matter how much I love them or how much I take care of them, so I'm going to have to make that unhappen somehow. I’m going to be proactive and plan for it rather than be reactive and have [the money] come out of places I don't want it to come out of.
Can you talk more about how pet insurance can help pet owners?
I think we live month to month now. We, as a society, are “month-to-monthers” whether or not we make great money or we’re a struggling student. I used to always hear people say that pet insurance is great for people on a fixed income. We're all on a fixed income because whatever we make, we've allocated. We might be putting it away for retirement, we might be sending our kid to college, we might be putting it aside for a roof or braces for our kids. But we don't have these pots of money that we keep in envelopes everywhere that we don’t touch: “Oh, that's for that, I'm not gonna touch that.” We have a pool [of money] that we draw on every month.
Over 3 million pets were insured in the U.S. in 2020.
I see pet insurance as kind of a bridge for when you're in that pool and you've got that monthly expense. It gets me through what I need to deal with today, so that next month, I can go back to normal. Maybe I take a little hit because my coinsurance is 20% and 80% of it is covered, but still. I just had a series of five recurring ear infections for my dog and that was $300 a pop, and at the end of it, I ended up with 80% of that back in my pocket. And it was well worth it. I'm protecting my month-to-month living with pet insurance.
But what if your pet stays healthy and you rarely use the insurance?
I think a lot of people and a lot of media come at it from a return-on-investment perspective. We don't approach any other insurance like that. We don't go, “Gee, did I get my money back from the dental they took off every month for this year?” I'm not looking for the return on the investment because I know over the lifetime of my pet, I'm going to see a return. And if I don't, that's great because that means my pet is healthy and I was prepared, and I wasn't slammed three times where I went into the hole for it. It's an empowering tool.
Buying Pet Insurance
How should people approach buying pet insurance?
Talk to your vet and ask your vet questions: “What are some of the common conditions that my dog or cat could see and what would it cost to treat those on an emergency basis?” Because a lot of us don’t need that month-to-month money. What we need is the “holy cow, this massive thing has happened [money].”
“I'm in stress, I’m emotional about my pet being sick, I’m having to make these big decisions, and now I'm having to worry about ‘Can I cover this? Can I afford it? Can I take a 3, 4, 5, 6, 10 thousand dollar hit this month?’ ”
What factors influence how much pet insurance costs?
If you have a super comprehensive bells-and-whistles policy with lots of coverage and benefits, you pay more. If your pet is older, you pay more because the likelihood of them being sick or ill or injured is higher. So the thing to keep in mind is it's not impossible to get coverage when your pet is older, but it's definitely more expensive.
There are a number of factors that are considered. I mentioned the first one, which is “What is the actual coverage that you've chosen?” because that obviously impacts the price. If you have unlimited benefits and no deductible, then that's going to be more money, but you're basically going to have carte blanche.
In 2020, accident and illness policies cost an average of $49.51 per month for dogs, and $28.48 per month for cats. Accident-only policies were much less expensive at $18.17 and $11.13, respectively.
You can also get per-condition limits and things like that. So first thing, to me, is to know what you're going to need, then to look at the coverage. They're all going to ask you the same questions: Where do you live [postal code]? Dog or cat? The breed, and the age of the pet. And all of those factors combine to tell us what the risk of that particular animal is. The reason that location becomes a factor is not so much risk as it is the cost of the veterinary care.
Is there an age limit after which insurers won't renew policies?
Most of them have what's called “covered for life,” meaning that so long as you stay enrolled, you will automatically renew each year—you just have to maintain the policy. So, one of the things I would look for is that guarantee that my pet will remain covered so long as I am true to the policy.
Can you speak to some of the changes that are in store for consumers?
The goal of regulatory initiatives underway across the U.S. is to standardize the product more. What we have is 50 states with 50 different products, 50 different filings, 50 different experiences of pet insurance. California requires a copy or sample of the policy to be on the homepage of the provider’s website. Other states don’t require those things. In some places, you can sell wellness as an add-on. In others, wellness isn’t considered insurance.
Standardizing what the product is seems to be a main goal of regulators—that uniformity of a product.
So I think that that adds a lot of complexity and cost, whereas car insurance is car insurance. You know what that looks like.
What are some other challenges the pet insurance industry faces?
Pet insurance is such an emotional product. People are emotional when they talk to you about it. They’re emotional when they buy it, they’re emotional when they claim, they’re emotional when the claim gets turned down (for perfectly valid reasons). They’re emotional when they complain to an underwriter, they’re emotional when they escalate that.
What’s really funny is even talking to the regulators, they’ll talk about their pets! They’ll share their experiences of them. You don’t get that in [car insurance]: “Oh, my car is a Volkswagen, it’s really beautiful, I love it. We’ve had it for many years.” It’s really different in that way.
Pet insurance is designed to protect you from things you hope don’t happen, but there’s a chance they will. That risk is what we’re insuring.
The risk changes when it’s known, as it is when you include wellness. It changes again when you have adverse selection. For example, suppose that all of a sudden you say preexisting conditions can be covered for everyone. Well, then you're going to attract every sick pet and every parent that knows their pet is sick, and that will affect coverage for the existing policyholders.
That’s one of the challenges: Walking that balance between what’s right for the pet, what's right for the veterinarian, what's right for the pet owner, and what's right for the insurer so that they can keep providing coverage and they can keep providing affordable coverage.