What Is Pet Insurance and How Does It Work?

by Molly E. Sandwell, January 10, 2023

What is pet insurance, exactly? How does it differ from other forms of insurance like car or renters insurance? Does it work the same way as our own health insurance? The answers may surprise you.

What Is Pet Insurance?

A pet insurance policy covers your cat or dog (and occasionally other pets) from certain injuries and illnesses, helping to offset the cost of care when unexpected medical needs arise. Unlike our own health insurance policies though, you likely won’t need to worry about finding a provider who accepts your pet’s insurance.

Pet insurance is different from health insurance, in which the insurance company directly pays the doctor, because with pet insurance you select and pay the veterinarian while your insurance reimburses a portion of the costs.

In many ways pet insurance is similar to car insurance, protecting our furry family members from the financial burden of unforeseen accidents and certain illnesses in the same way auto insurance protects against unexpected damage and collisions. And just like car or renters insurance, pet insurance must be purchased before injuries or mishaps occur in order to be effective.

So, how does pet insurance work?

The answer is surprisingly simple: visit any licensed veterinarian, pay them directly, and submit the costs to your insurance for reimbursement. Just be sure to purchase your policy before your pet needs it – policies have waiting periods (usually around 14 days) before they go into effect.

Since the vast majority of pet insurances do not pay the vet directly, the pet owner will initially need to pay for the full cost of services at their veterinarian or animal hospital. Luckily, this means you won’t have to search for an in-network provider, worry whether your preferred veterinarian accepts your insurance, or change vets to have care covered the way medical insurance often necessitates.

After the needed services, procedures, and medications have been paid for, the policy owner will submit a claim to their insurance for reimbursement. This will often include receipts, supporting documentation, and medical history, so be sure to save any invoices and accompanying paperwork received from your veterinarian. The claim is processed and reimbursements are typically issued to policyholders within 15 days.

The amount that is reimbursed will depend on several factors including your policy deductible, reimbursement percentage, and the parameters of your particular plan’s coverage – all of which should be carefully considered before purchasing a policy.

Read on to learn more about these terms below.

Deductible

Your deductible will be the amount that you will need to pay before your plan will reimburse you. Say your deductible is $100 and your vet bill is $600 – you will need to pay $100 and will have a portion of the remaining $500 reimbursed by your insurance depending on your reimbursement percentage and plan coverage.

Reimbursement percentage

The reimbursement percentage (or reimbursement rate) is the amount that your insurance pays you back after the deductible is met. Reimbursement percentages commonly range anywhere from 60% to 100%.

Let's say your reimbursement rate is 80% – using the previous scenario of a $600 vet bill and $100 deductible, this means of the $500 remaining after your deductible, you can be reimbursed up to $400 (80% of $500) depending on which services – including medications, veterinary exams, and/or surgical procedures – are covered by your policy.

Coverage

What exactly is covered will vary by plan and provider. Generally, pet insurance will cover accidents, unexpected injuries and illnesses, diagnostics, tests, emergency exams, and medication. Some more encompassing policies may even cover hospital boarding and alternative therapies like acupuncture or chiropractic treatment.

However, pet insurance will most likely not cover preventive and routine care, vaccinations, spaying and neutering, or grooming. And the most important thing to note is that pet insurance, no matter how comprehensive, will not cover pre-existing conditions, which means it is a good idea to purchase when our fuzzy friends are young, or better yet – puppies or kittens!

Limits

One last consideration when deciding on pet insurance are plan limits. Limits may be per-year, per-incident, or even per-lifetime.

Annual limits are the maximum amount you can be reimbursed in a 12 month period. Once this limit is reached, you are responsible for paying all costs until that 12 month period ends and your coverage resets for another year.

Additionally, per-incident limits restrict how much your insurance will reimburse for a single injury or illness. Likewise, a maximum lifetime payout caps the amount an insurance company will pay during your pet's life. After reaching this per-lifetime limit, the insurance will cease to reimburse you for services and your policy will be terminated.

Premiums

Your premium is the monthly (or sometimes yearly) amount you pay to keep your policy active. Higher premiums generally come with more coverage and lower deductibles, while lower premiums tend to accompany less coverage and higher deductibles, so be sure to weigh the pros and cons before deciding which policy works best for you.

Additional Pet Insurance Tips

Insure your pet early

The earlier you purchase your policy the better. Pet insurance companies will not cover pre-existing conditions and older pets with more health conditions will be costlier to insure. The best time to get a policy is before your pet develops any conditions in order to maximize your coverage and minimize your premium costs.

Check for requirements

Be sure to check if your plan has requirements you need to follow. Certain providers may possess pet care requirements that you’ll need to follow, such as keeping up to date on vaccines, otherwise you may risk a rejected claim.

Consider insurance shopping before choosing a new pet

Policy rates can vary by breed since certain breeds can be more prone to specific health issues. If you haven’t settled on a particular fur baby yet, consider researching the average insurance cost for different breeds you're considering. Perhaps, you're even on the fence whether this new family member will be a dog or a cat? On average, dog insurance is more expensive than cat insurance. If you’re working with a leaner budget, you may wish to opt for the lower cost companion instead.