If you have owned a pet for any length of time, you will know that getting treatment for a sick or injured animal can get very expensive very quickly.
According to Animal Medicines Australia, Australians spend $12.2 Billion / year on their pets.
When you take purchase costs, food, grooming, toys, vaccination and vet’s bills into account, your average dog would cost roughly $13,000 over the course of its lifetime.
From a budget coach perspective, my average client and budget app user allocates approximately $78/ month to their pet jar. This typically covers the annual check-up, food, medication and grooming – in other words the known costs.
Not surprisingly, more and more people are starting to question if Pet Insurance is worth considering. In fact, I was shocked to discover that over 350,000 Australians already have Pet Insurance.
Given the obvious interest, I thought I should take a look at Pet Insurance and if it makes sense from a financial perspective. So, in this article I will cover the following topics:
1) What is Pet Insurance?
2) What to consider when looking for a Pet Insurance policy
3) When is Pet Insurance financially worthwhile?
4) When isn’t Pet Insurance worthwhile?
5) Wise alternatives to Pet Insurance
A quick admission
I have to tell you upfront that I have never been a big fan of Pet Insurance, because l have always felt you are better off saving the premiums and building a cash reserve that can potentially be used to cover a range of unexpected expenses and emergencies not just pet-related issues.
However, over the past month, three of my clients have had unexpected vet’s bills that each totalled thousands – with the most expensive bill coming in at over $6,600!
This was way more than any of them had ever anticipated spending on a pet, yet one thing led to another and before they knew it there was the bill, GULP!
So here I am investigating the virtues of Pet Insurance…
What is Pet Insurance?
Pet Insurance is basically a form of ‘health insurance’ for our furry family members. Pet Insurance is typically offered to all breeds of cats and dogs (companion pets).
I could not however find any Australian companies that currently provide Pet Insurance for other furry or scaly critters such as rabbits, guinea pigs, rats, mice, ferrets, reptiles, pet rocks etc
But I have no doubt that in time there will be, along with a plethora of ads on TV!
As it stands right now, there are 3 broad categories of Pet Insurance:
Stated Benefit Cover (Accidental Injury) – this typically covers injuries resulting from an accident ie broken bones, bruises, lacerations etc.
Comprehensive Cover (Accident and Illness) – this is cover for accidents as well as specified illnesses like cancers, infectious diseases, hereditary and congenital disorders.
Comprehensive Cover plus ongoing care – this includes all the cover outlined above but can also include annual check-ups, vaccinations, desexing etc.
Obviously the more the policy covers, the more expensive it gets.
What to consider before buying Pet Insurance
As with Private Health Insurance for humans, there are a number of variables to consider when looking at the various policies available. This can make comparing policies from different providers difficult and confusing but here is a list of things to consider when considering Pet Insurance.
1) How old is your pet?
As with humans, the older your pet the more expensive they are to insure. Also, many pet insurance providers have a ‘co-payment clause’ that reduces the level of cover based on age.
In many instances, insurance providers will cover 100% of a vet bill up to age 7 but once they get past this age the level of cover reduces to say 80% at ages 8-9 and then to 65% once your elderly fur child passes the 10 year milestone, leaving you to pick up the difference.
2) Does your pet have any pre-existing conditions?
If you pet has any pre-existing conditions, it is reasonably likely that these conditions would attract exclusions and therefore not be covered. It is also worth checking that the breed of your pet does not attract specific exclusions due to known congenital issues.
3) Be absolutely clear on what treatments and conditions are covered
From the reviews and articles I have read, there are plenty of instances where pet owners thought they were covered, only to find they weren’t when it came time to claim.
Most insurance companies will not provide cover for diseases for which there is a known vaccine. So, immunising and worming your pets routinely is important.
Dental work, pregnancy, elective treatments and diagnostic procedures are also common exclusions.
4) Understand the benefit limits
When determining if a health insurance policy is good value it is important that you understand what the benefit limits are.
Many policies have a ‘lifetime benefit limit’ for certain conditions, so once you have reached that limit everything else becomes your cost. While other policies, like human health insurance, have annual limits which can be used up all too quickly when your pet suffers from a chronic condition.
5) You pay first and pet insurance reimburses
It is important to point out that in most cases that even with Pet Insurance you will be required to firstly pay the entire vet’s bill and then take your receipts to the Pet Insurance company to be reimbursed.
So now we know what to consider to when looking at Pet Insurance, I now want to discuss the situations in which Pet Insurance can make financial sense.
When can Pet Insurance be financially worthwhile?
Of course, with 350,000 Australians taking up Pet Insurance there must be some situations where having Pet Insurance does make sense.
Here are 3 good reasons why Pet Insurance may be financially worthwhile for you:
1) If “No Amount” is too much
If your answer to the question “How much would you be willing to spend to save a sick or injured pet?” is “whatever it takes”, then having Pet Insurance would potentially make sense to offset the cost of what could be budget-crippling expenses.
2) Starting when your pet is young
If you start the Pet Insurance while your furry friend is young and healthy, the premiums are lower but more importantly you can also avoid many of the exclusions that come when trying to insure a pet at a later stage of life. While you may end up paying Pet Insurance for nothing for a few years, it could pay off when your pet does start to develop chronic age-related conditions later in life.
3) If a big vet’s bill could sink you financially
As a budget coach, I am only too aware of how many people are living from pay to pay. If you are constantly living on the edge financially and live in fear of the day that Fido or Tigger needs a sleepover at the vet’s, then Pet Insurance may be a form of forced savings that gives you the financial back up you need should a big vet’s bill come your way.
Of course, as a budget coach I would also suggest that you are better off getting some help to get your finances sorted overall, rather than just finding a band-aid solution to one potential expense.
So when doesn’t Pet Insurance make financial sense?
1) If your pet is getting on in years
While the twilight years are typically the most expensive healthcare-wise, the insurance providers know this and price their policies accordingly. Premiums for older pets are significantly more expensive, many of the common illnesses are excluded, the benefit limits are lower and as discussed before many policies have a co-payment clause after your pet reaches 7 or 8 years of age.
It can be very hard to make a financial case for pet insurance once your pet reaches 7 or 8.
2) If you are pragmatic about how much you are willing to spend on a pet
If you believe that there is a limit to how much should be spent on a pet’s health care, and would opt to have your pet put down rather than undergo expensive treatment, then pet insurance definitely does not make sense for you.
3) If you are a good money manager
If you live to a budget and can consistently save money, then you will mathematically be better off over the life of your pet if you saved the premiums, and instead channelled all your savings into a mortgage offset or high-interest savings account so the funds were available if or when you needed them.
The smart alternative to Pet Insurance
Unexpected expenses and emergencies are a fact of life. Pets will get sick, appliances will die, the car will need expensive repairs – and while we cannot predict what the expenses will be, or when they will occur, we do know they will happen. Allocating money specifically to one possibility via Pet Insurance is an inefficient way to protect yourself against the unexpected.
As a financial adviser and budget coach, I recommend that my clients take a broader approach to covering themselves against the unexpected.
1) Instead of paying Pet Insurance premiums, channel those funds plus any additional savings into a high-interest savings account or offset account until you have a $3,000 to $5,000 buffer.
2) Once you have the buffer in place, channel any additional premiums into knocking down any high-interest lifestyle debt such as car loans, personal loans and credit cards, saving you 10-20% interest each year.
3) Once your lifestyle debt is cleared, channel the premiums, plus the debt repayments you no longer have, into your high-interest savings or offset account so that when those unexpected expenses do arrive, you have the financial capacity to cover them.
4) The last thing you must do is budget for your ‘known’ pet care costs. All of my budget coaching clients have a virtual ‘pet jar’ that they allocate a certain amount of money to every month to cover the annual check-ups, vaccinations, grooming, medications and food. The buffer is then only needed to cover the truly unexpected, or unexpectedly large costs that you just can’t anticipate or budget for.
It is important to remember that insurance providers pay very smart people lots of money to work out how to price their premiums, so they can cover claims and still produce a profit for shareholders.
Over the life of your beloved pet you would be better off financially if you diligently use the premiums to build yourself a cash reserve to cover a range of unexpected expenses rather than just the risks of an exceptionally large vet’s bill.
However, I understand that for reasons I have outlined above, taking on Pet Insurance may be the right move for some people.
If you do decide to take on Pet Insurance, please do your due diligence and make sure you understand what conditions and treatment options you are covered for and what your benefit limits for each of those are.
As always please feel free to leave any questions or comments below or email me at [email protected]