How Does Pet Insurance Work?

Pet insurance can help you recover some of the veterinary costs of owning a pet. You pay premiums and must meet a deductible before coverage kicks in. When your animal needs care, you pay for it and then submit a claim for reimbursement. Your policy should detail up front what types of care are covered (treatment for pre-existing conditions is never covered).

It’s a relatively new industry: It wasn’t until that famed canine Lassie first received a pet insurance policy in 1982 that pet insurance became a formalized option. Only 25 companies offered pet insurance in North America in 2022. Still, according to the North American Pet Health Insurance Association (NAPHIA) latest data, "since 2017, the average annual growth rate of insured pets is 21.5%."

Finding the best pet insurance depends a lot on what your pet situation is and what kind of coverage you’re looking for. Here’s what you need to know about how pet insurance works.

Advantages of Pet Insurance

You love your pet like a member of the family, but the insurance industry sees Fido or Fluffy more as property. That’s why pet insurance functions more like property insurance than health insurance. Still, before you remind somebody that your pet isn’t a piece of property, understand that this designation works in your favor. Reading and comprehending the policy is a cakewalk compared with health insurance policies written for humans. Consider these advantages:

• Choice of Vet: As long as the vet is licensed, pet insurers won’t tell you whom you can and can’t see. There are no out-of-network doctors such as those your own health insurance policy probably dictates.
• Simple Policies: Most companies have only three tiers from which to choose. There is accident-only (basic coverage); accident and illness (comprehensive coverage); and wellness coverage, which is for preventative procedures only and doesn't cover emergencies.
• Cheap Premiums: Insurance costs vary with coverage and policy but, in general, wellness coverage costs about $10 per month, accident-only coverage runs about $11 (for cats) and $20 (for dogs) per month, and accident and illness coverage averages about $29 (for cats) and $49 (for dogs) per month. Of course, the cost depends on a host of variables, including breed and age of the animal, where you live, and the options you choose as part of your policy.

If you understand insurance-speak, you can figure out a pet insurance policy. You will pay a monthly or an annual premium, a deductible (a certain amount before the policy kicks in), and possibly a co-pay. Deductibles can range from $50 to $250 but to save money on the premium, high-deductible plans are available. Co-pays range between 10% and 30% of the cost.

There is one major difference compared with many human healthcare policies. The first person to pony up the money is you—not the insurance company. In other words, as the sign at some doctors’ offices says, “Payment is due at the time of service.” After you pay, you file a claim with your pet insurance provider and wait for a check.

Some veterinarians may allow you to forego payment until the insurance company pays its portion. However, before you agree to that high-dollar procedure, make sure you’re clear about the method of payment.

What to Watch for

First, if your pet has preexisting conditions, your policy may not cover them but they have to disclose that information to you. In August 2022, the National Association of Insurance Commissioners passed the Pet Insurance Model Act, to set regulatory standards for the growing pet insurance industry. One of the main elements was related to preexisting conditions, stating that responsibility of proof for preexisting condition was on the insurer and limits are placed on how insurers can deny those claims. Also, any condition covered under the policy cannot be considered a preexisting condition upon policy renewal. Note, however, that NAIC is a regulatory support organization governed by chief insurance regulators from all 50 states, the District of Columbia, and five U.S. territories, and does not have legislative powers.

Next comes the waiting period. You can’t take out pet insurance when you learn that your pet requires a costly procedure. Insurers know that trick. While it may vary by state, waiting periods may not exceed 30 days and there is no waiting periods allowed for accidents. The insurers must disclose their waiting period policy before the consumer purchases the policy. Also, neither waiting periods nor veterinary exams are allowed as conditions for existing policy renewals.

Ask about maximum payouts. These might include maximums per incident, per year, or over the life of the policy. Generally, the highest-level policies have the highest payouts. 

Finally, most policies will increase your premium to account for rising costs and the condition and age of your pet. However, some companies do not. Ask about rate increases before signing the policy.

The Bottom Line

When something really bad happens, insurance is worth the years of premiums you paid. For routine or relatively minor problems, you’re probably better off putting the monthly premium into a kitty or doggy emergency fund to pay for those unexpected bills. If you elect to purchase pet insurance for catastrophic care, get the highest deductible you can comfortably afford.