Is Pet Insurance a Good Investment?

money questionsRecently, during a Q&A, an audience member asked this question. Now, I’m a bit of a skeptic about a lot of financial products – insurance being a big one – so my standard answer is probably not.

After-all, there’s a reason most of us run the other direction when we meet an insurance agent at a party! But, to be fair, I went and did some more research on insurance and pet insurance particularly, and here’s a more detailed answer.

Risk – of almost any kind – make most humans crazy.

The entire insurance industry, from asset protection (property and casualty), income (life and annuities) to cost containment (health, travel and pet) sucks over four hundred twenty one BILLION dollars (2.5% of GDP) from the US economy annually.

They’d like you to think they have your best interests at heart but many of the products they sell you have an obscenely high profit margin.

According to the Insurance Information Institute:

  • There were 6,086 insurance companies in 2013, including P/C (2,623 companies), life/annuities (904), health (835), fraternal (87), title (58), risk retention groups (256) and other companies (1,323), according to the National Association of Insurance Commissioners.
  • Insurance carriers and related activities accounted for $421.4 billion, or 2.5 percent of U.S. gross domestic product in 2013, according to the U.S. Bureau of Economic Analysis.
  • The U.S. insurance industry employed 2.5 million people in 2014, according to the U.S. Department of Labor. Of those, 1.5 million worked for insurance companies, including life, health and medical insurers (838,200 workers), P/C insurers (596,000 workers) and reinsurers (25,200 workers). The remaining 1 million people worked for insurance agencies, brokers and other insurance-related enterprises.

And, for the 2014 year the III reports:

“an underwriting profit of $12.3 billion (compared to $15.2 billion in 2013). The industry’s overall net income after taxes (profits) for the year tallied $55.5 billion (though down from $63.4 billion a year earlier)… Overall industry capacity rose to a record $674.7 billion as of December 31, 2014—up $21.3 billion, or 3.2 percent, from $653.4 billion as of year-end 2013.”  

But, today’s question is: Does pet health and accident insurance protect you from a real risk or is it another profit center for the insurance issuers?

Let’s start with some numbers –

Pet Number US House-

holds with Pets

Number of Pets in

US Households

Bird        6.9M        20.6M
Cat      45.3M         95.6M
Dog      56.7M         83.3M
Horse        2.8M           8.3M
Freshwater fish      14.3M       145.0M
Saltwater fish        1.8M         13.6M
Reptile        5.6M         11.5M
Small animal        6.9M         18.1M
*Source: Dog ill pet insurance
American Pet Products Association’s 2013-2014 National Pet Owners Survey.

If you’re (like me), one of the 56 million plus dog owning or 45 million plus cat owners in the United States, you probably know that an unexpected injury or illness of your furry friend can bust your budget.

Veterinarians now treat household animals for cancer, heart disease and other chronic illnesses plus fit them with artificial limbs and do complicated reconstructive surgeries on injuries that would have sent previous generations of pets off to the Rainbow Bridge.

Pets are big business in the USA – everything from food and clothing (yeap, my pit bull Indo needs a sweater in the winter) to special medications cost us about $55.5 BILLION in 2013*.

None-the-less, the American Veterinary Medical Association reports that in 2012 we spent an average of $227 per dog and only $90 per cat on routine vet bills and about $600 on dog surgeries, a bit under $400 for cats. So, it would seem that pet health and accident insurance is not something the average pet owner needs.

Two types of pet owners might be better off covering the risk:

  • Those who are unable to save an emergency fund to cover unexpected bills and
  • Those who are so emotionally attached to their furry family member that they’ll spend “whatever-it-takes” to prolong their lives.

Typical pet insurance runs $25 – 30 a month or $300 – 360 per year. Older or already ill pets will cost more. Over a typical 10 – 15 year lifetime that adds up to about $5,000.

Most policies don’t cover routine vet visits, just accidents and certain illnesses. If you do decide to purchase pet insurance, look carefully at the deductibles, exclusions (pre-existing conditions) and policy limits; be sure your vet accepts the insurance and compare prices. It’s likely you’ll still pay a portion of the additional expenses plus the insurance.

So, I suggest it’s better to save $5,000 as a pet fund unless you fit into one of two types above (and if you’re the non-saver, I suggest learning to save, instead!). Most pet owners will never spend that much in vet bills and in general, it’s unwise to purchase insurance to cover relatively small risks of any kind.

Final Answer: NO.

Skip the insurance and create a pet emergency savings account!

Live long and prosper, Leah the

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