The basics of pet insurance

Americans regard their pets as members of the family. Whether someone has a fluffy four-legged creature or a slithery reptilian companion, many people demand similar services for their pets as they do for themselves — and that includes heath insurance.

According to the American Pet Products Manufacturers Association, Americans spent roughly $10.1 billion for pet health care in 2007 — a 40 percent increase from 2006. The insurance industry isn't ignoring these numbers. Jack Stephens, founder of Pet's Best Insurance, says that Americans spend roughly $250 million annually on pet insurance. That figure is expected to increase to $1 billion by 2011, he says. That makes pet insurance one of the fastest growing insurance lines.

Priya Selvan, spokesperson for the North American Pet Health Insurance Association, says that there are between 12 to 20 companies that sell pet insurance in the United States and about five in Canada. Policies for pets have shot up in popularity because modern technology and medicine now allow pets to undergo procedures and surgeries that were inconceivable in the past.

"There was a point in time that treating a dog with cancer was not feasible," Selvan says. "Now they have medicine on par with human medicine for animals."

But such procedures are not cheap. For example, it can cost anywhere from $3,000 to $20,000 for a dog to undergo chemotherapy and surgeries to treat cancer — depending on the size of the dog and the stage of the cancer. A hip replacement for a dog can cost as much as $10,000. Pet insurance makes these treatments feasible.

"Pet insurance is a way to avoid economic euthanasia," Selvan says.

That's precisely the reason Stephens says he founded the first pet insurance company in the United States in the early '80s, Veterinary Pet Insurance (VPI), which he later sold. VPI currently insures roughly 467,000 pets — including exotic types — throughout the United States, says Brian Iannessa, VPI's spokesperson.

How much is that policy in the window?

Insuring your pet doesn't have to cost you an arm and a leg. Pet insurance can run between $8 to $50 a month, depending on the breadth of coverage, Selvan says. For example, you can buy accident coverage (which pays for things like your pet being hit by a car) for as low as $8 to $10 a month. Or you can purchase accident and illness coverage for $18 to $30 a month. That will cover accidents as well as illnesses like the stomach flu. Finally, you can buy high-end coverage that will cover all of your pet's health needs (including surgeries and treatments) along with a wellness plan that covers preventative care and annual health screenings.

"It's kind of like human insurance," Selvan says.

In fact, some employers offer an extra benefit option that will give you a discount on pet insurance. Iannessa says that VPI has a partnership with more than 1,600 employers in the United States.

Some of the employers that partner with VPI include the Ford Motor Co., Office Depot and Chipotle Mexican Grill restaurants.

What's covered?

As with human health insurance plans, coverage varies from company to company. For example, VPI is unlikely to sell you pet insurance if your pet is more than 10 years old. But if you want to insure your boa constrictor, lizard, ferret or turtle, VPI is the only insurer in the United States that will insure exotic pets (with the exception of insurance companies that cater specifically to zoos). Pet's Best will provide certain types of coverage to older pets — assuming your pet does not have any serious pre-existing conditions. But Pet's Best focuses solely on pooches and felines. If you are looking to insure your horse, you have to find an equine insurance company. Most standard pet insurance companies do not cover horses because they are considered a higher insurance risk.

Your pet's level of coverage will depend on the policy you purchase. If you purchase a high-end policy, your pet will be covered for surgeries, illnesses, infections and disease and can receive annual health care screenings.

The major differences among pet insurance plans are the amount of your deductible, the maximum amount the insurer is willing to pay per incident and the maximum amount the insurer will pay out during the lifetime of your pet. These factors determine the cost of the policy.

For example, the most popular plan offered by Pet's Best is its Pets First Plan. It costs roughly $300 a year ($25 a month). In this plan, your deductible would be $75 and the insurer would pay up to $7,000 per incident. Your coverage would be capped at $100,000 for the pet's lifetime. If you want something cheaper, you can purchase the Basic Plan. It will cost you about $200 a year and you will pay a $100 deductible for any treatment before coverage kicks in. Pet's Best will pay $2,500 per incident and up to $45,000 for the lifetime of the pet.

In addition to insurance, most pet insurers will also offer wellness programs that cost roughly $144 per year, according to the Insurance Information Institute (III). This type of plan reimburses you for preventative pet care including physical exams, diagnostic tests, X-rays and lab fees. There is no deductible.

Also, much like health insurance for people, you can buy "HMO coverage" for your pet in some states. These "HMO" polices are sold by veterinarians but they are not insurance policies and are not subject to the same rules and regulations required of insurance companies. According to III, these policies are similar to wellness plans and offer discounts on vaccinations, spay/neuter procedures and dental cleanings. Some also include basic health check-ups.

Jeanne M. Salvatore, senior vice president of public affairs at III, recommends verifying that your pet insurer is licensed in your home state before you buy insurance.

One of the potentially most expensive dog-related costs is not covered by pet insurance: Dog bites. Liability claims against dog owners when their pet bites someone would fall under home insurance claims.

Top dog

By far, dogs are the most commonly insured animal — followed by cats and horses. According to VPI, the Labrador retriever is the most commonly insured dog. In 2007, more than 38,500 labs were insured by VPI. Others that made the list include the golden retriever, Yorkshire terrier, shih tzu, boxer, German shepherd, Chihuahua, Maltese, pug and cocker spaniel. The American Kennel Club lists the Labrador retriever among its most commonly insured breeds, along with beagles, dachshunds, poodles and miniature schnauzers.

VPI calculated the average amount that its policyholders spend on nonroutine veterinary care per year for each of the top insured dog breeds. The German shepherd tops the list with an average nonroutine medical cost of $296 per year. The dog logging the lowest medical cost on the top 10 list is the shih tzu ($207 per year).

"The medical care costs appear directly related to the size of the breed," Iannessa says. "But that could be due to the fact that larger breeds can require larger doses of medication."