Pet Insurance: To Buy or Not to Buy

So you took the leap and bought that ridiculously adorable puppy or kitten. Congratulations. As time goes by, you will invariably have to take your new member of the family to the vet. This eye- and wallet-opening experience may lead you to the second realization: Pets can be awfully cute—but expensive. Which brings us to the decision to purchase pet insurance (or not).

As with most financial decisions, pet insurance depends on how you manage your personal cash flow. 

Here's an easy rule of thumb: If you have a household emergency fund that can sustain you for at least three months of normal expenses, you probably don't need pet insurance. The reason is that this type of insurance is rarely, if ever, worth the premiums after a few years. If you were to just save the monthly premium into a "pet emergency fund," you could fairly easily "self-insure" after two years.

Take the premium quote for Whole Pet coverage below. If you could diligently save into an account for two years, you'd have about $1,400 in your pet's emergency fund. This would fund a normal emergency for most young pets. If your pet lives longer, you would do well to keep saving into the emergency fund. Generally speaking, the older a dog or cat becomes, the more drawn out and expensive are the veterinary services. Having a $3,000 fund would cover the needs of many dogs or cats.

The other aspect to this type of decision depends on how you use your pet’s veterinary service. If you buy a sickly breed or just have bad luck with pets, and you also have a hard time making financial ends meet, you may want to consider purchasing insurance.

For example, let's say your pet sustains an injury around April. You owe taxes, rent is due, and now your vet is asking for $1,000 to fix Fluffy's broken leg. Paying a smaller monthly insurance premium every month would have been a better option than being late with your taxes and rent. 

The Philosophical Side: Having a Logical Understanding of Any Insurance Coverage

We often explain to clients that they should view all forms of insurance as being a source of net outflows, or lost income, and to simply accept it as a part of life. Why? If you think about insurance from both sides of the table, the point isn’t for you to make a profit after you sustain a personal loss. Otherwise, insurance companies would go out of business.

The point of having insurance coverage is to avoid sustaining a large financial loss. Hopefully, you'll never have to make an insurance claim. People don't often know or understand the hidden and sometimes severe costs of being injured or having personal belongings destroyed.

But back to our furry family and friends ...

We took a sample from Nationwide (a large insurance carrier that offers pet insurance) for a 1-year-old puppy of moderate size. The insurance plan had three options:

Pet Ins.jpg

You can see the most useful insurance is clearly on the left, and not surprisingly, it’s the most expensive. I was entertained by the coverage for wellness, alternative, holistic, and behavioral treatments because they typically aren't even covered on human medical insurance policies!