Pet Insurance Plans - Wise or Wasteful

Most people carry health insurance, and with good reason. If you get sick or injured, medical expenses could run into tens of thousands of dollars. Very few of us could afford an unexpected expense like that. Most health insurance policies cover more ordinary medical expenses too – things like office visits, lab tests and prescription medication. If these kinds of things weren’t covered by insurance, we might be tempted to skip them when money is tight.

What about your dog or cat? Health insurance is available for them too. It’s a relatively new product. Not too many years ago, veterinary bills weren’t that hefty. You would take you pet to the vet and pay the bill. Sometimes your pet just couldn’t be saved and the vet would put him to sleep. Although that can still happen, it’s you’re much more likely to face the choice of an expensive surgery or medication and letting your pet go. As more and more treatments become available for humans, the same is true for pets. Many diseases, including some types of cancer are no longer a death sentence. Your pet could get an operation, which might require hospitalization for days. And he might need to be on medication for the rest of his life, but he’ll be okay. As great as that news is, there is a down side. The vet bill is no longer a manageable expense for many of us, especially those who are willing to do anything for their canine or feline best friend. Enter pet health insurance. Just like medical insurance for people, it pays the vet bills, or a portion of them, when your dog or cat needs medical care. Should you buy it?

Let’s look at the financial product called insurance. It’s offered for cars, houses, medical expenses, even that new stereo. There are basically two types of insurance: catastrophic and incidental. Catastrophic insurance covers the things that you couldn’t possibly afford by yourself. For example your medical insurance covers you if someone in your family has a major accident or illness and you couldn’t possibly pay for the treatment. Car insurance covers you in case you cause thousands of dollars worth of damage to someone else. You cannot live without catastrophic insurance – sometime literally.

Incidental insurance, on the other hand, helps you manage financial risk. You pay a little bit each month in premiums, and then when you need it, the insurance company covers the expense. Vacation insurance and extended warranties fall into this category. So does pet insurance.

There is a better way to handle all of your incidental insurance needs: be self insured. Whenever you're tempted to buy any kind on non-catastrophic insurance, figure out what you would pay each month for it. Instead of paying that money to an insurance company, deposit it in a separate bank account. When an expense arises, you'll have the funds ready. Even better, you'll be able to spend it however you choose, with no deductibles or limitations. Also, by putting money for all types of incidental insurance in the same account, you'll be able to spread out the risk. And if you're lucky and have no claims, you can keep the money! Sounds pretty good, doesn’t it?

The problem with this plan is that you might be tempted not to put the money aside consistently. To make this work, you need to find an automatic way to deposit the money. Does your employer automatically deposit your paycheck in your account? Most of them have the ability to make two direct deposits instead of one. Have them put a certain amount in your 'insurance account' and the remainder in your regular checking account. Or maybe your bank can automatically move a specified amount from your regular account to this new account every month. Or if you have the discipline, you could pay it every month like a bill.

Not everyone has the discipline to fund a self insurance account. If you make this plan but then don’t follow through, there’s a good chance you’ll face some unexpected expenses and not have the funds to pay for them. If you know you don’t have the necessary discipline, and you wouldn't be able to afford whatever medical care your pet needs, then pet insurance might be a good idea.

Just like any other insurance policy, you should do a complete pet insurance comparison before you choose a policy. Check out what is covered and what isn't, and what the deductible will be. Decide whether you’re just going to buy insurance for serious and expensive medical expenses (catastrophic), which is less expensive, or if you want a policy that will cover expected expenses like vet visits and vaccinations. Get quotes for insurance on the kind of pet you have. Ball park estimates aren’t good enough. Once you’ve uncovered the best price for the policy you’re looking for, double check with your vet to make sure the company is reputable. Then make it a part of your regular budget, and stop worrying about vet bills!