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Should You Buy Pet Insurance?

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One topic I've learned to avoid with new acquaintances until I know them better (along with politics and religion) is where they stand on the treatment of pets. Some people, when their dog gets sick or badly injured, say, "It's an animal -- that's just part of the circle of life." Others consider Rover a close family member and would take out a second mortgage to save his life.

Pet owners from both camps probably see the barrage of ads for pet insurance and wonder whether it's worth the expense, which might be several thousand dollars over the life of your pet. I did some research and the best answer I can come up with is, it depends.

Veterinary science, like human medicine, has made incredible strides in recent decades so many conditions that formerly would have doomed an animal to being put down are now easily treatable -- but at quite a cost. For example, according to Veterinary Pet Insurance, the average cost for a vet to extract a dog's tooth is $829 (it's even more for cats), while treating a dog's torn ACL or cartilage costs around $2,667, on average.

First, ask yourself: Do you regard pet insurance as a financial investment, where you expect to get back more in benefits than you paid out in premiums over the pet's lifetime? Or, is it more like auto or homeowner's insurance, where you hope that nothing ever goes seriously wrong, but you want coverage in case there's a catastrophe?

Either way, here are some basic facts about pet insurance that may help you decide whether it's right for you:

Pet insurance shares many features with human health insurance: Policies typically have monthly premiums, annual deductibles, copayments and exclusions, and some limit which veterinarians, clinics and hospitals you can use, while others set no such restrictions.

But there are numerous differences as well. For example, unlike human plans governed by the Affordable Care Act, pet insurers are allowed to refuse coverage for preexisting conditions and to set annual and lifetime payout limits.

Among the many other restrictions you should watch for when comparing plans are:
  • Premiums vary greatly depending on where you live and they may increase based on your pet's age, breed, veterinary cost inflation and other factors.
  • Typically you must pay the vet or hospital bill out of pocket and get reimbursed later.
  • Some policies reimburse you based on a schedule of what are considered usual, customary and reasonable charges, which may be considerably less than your vet's fees. Look for coverage with a straightforward, percentage-based payout.
  • Many plans deny or restrict coverage for congenital or hereditary conditions, like hip dysplasia in dogs or kidney failure in cats. Preventable conditions like periodontal disease are also frequently excluded from coverage.
  • Along with annual and lifetime maximums on benefits paid out, there may be a limit on how much it will pay for treatment of an individual illness or accident.
  • If your pet suffers a particular disorder one year, don't be surprised if that condition is excluded at renewal -- or if you're required to pay an additional fee for future coverage.
  • Pets over certain age limits frequently are denied coverage.
  • Certain breeds are often excluded or only eligible for restricted coverage -- pit bulls, Rottweilers, chow chows and Lhasa apsos, for example.
  • Some carriers let you augment your accident and illness policy with optional "wellness care" coverage for things like spaying and neutering, annual physicals, vaccines and routine tests. Make sure the additional premium is worth the extra cost, over time.

Perhaps the biggest challenge when choosing pet insurance is trying to compare plans, apples to apples. There are about a dozen carriers in the U.S., including major players like Veterinary Pet Insurance, ASPCA Pet Health Insurance, 24PetWatch.com and Trupanion. Each offers a variety of plans with varying deductible, copayment and maximum coverage amounts, as well as different covered benefits and exclusions.

You can go directly to their websites for plan details and to request a quote, or use an independent comparison website like Petinsurancereview.com or Pet Insurance Quotes to pull quotes from multiple carriers. I'd recommend creating a spreadsheet to compare benefits and costs side by side, just as you would when shopping for auto insurance.

Also, before signing on the dotted line, do you due diligence about the carriers. Ask your vet and other pet-owning friends for recommendations. Check with the Better Business Bureau and ratings services like Angie's List for customer complaints. And ask whether your employer offers discounted pet insurance as a benefit -- thousands of companies do.

Bottom line: If you decide pet insurance isn't right for you, at least be sure you're setting money aside to cover expected -- and unexpected expenses. And, as with humans, being diligent about preventive care for your pets will save a lot of money in the long run, so don't be a stranger to your vet.

This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.

To participate in a free, online Financial Literacy and Education Summit on April 2, 2014, go to Practical Money Skills for Life.