• Should you insure Fluffy and Spot?

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    catvet.jpg

    photo: theogeo

    When I posted a few weeks back about my cat’s sudden spate of vet bills, several people responded with questions about pet insurance. Is it worth it?

    Rarely. Here’s why.

    Matthew Amster-Burton just posted an excellent column at Mint explaining why some types of insurance are worth carrying and most aren’t. The short version: Insurance is a hedge against a gamble you can’t afford to lose. You need to insure your health, your house, your actions behind the wheel of a car, and — if you have others dependant on your income — your life.

    With almost everything else, the hit you’ll take if something goes wrong is manageable. Highly annoying, as I can attest from having our big-splurge LCD TV die the week after its standard warranty expired, but not financially devastating. You’ll do better over the long run socking away the money you would have spent on extended warranties, insurance, and the like and using that cash to cover the occasional debacles.

    But pet insurance is in a special category of rip-off, because the “coverage” you’re offered is almost always heavily stacked in the insurers’ favor.

    Here’s an example case. I checked the numbers on PurinaCare to insure Kea, our four-year-old American shorthair (and now toothless) mutt cat. You can pick your coverage level, so I ran the two most extreme scenarios: all-in coverage and catastrophe-only coverage.

    A plan covering only serious care (hospitalizations, surgery, illness and medications) with a $1,000 deductible would cost $18.49 per month in my state. Adding coverage for preventative care (annual exams, dental issues and vaccinations) would take the bill to $20.94 per month.  So, the lowest-cost case is $221.88 a year.

    Dropping the deducible to the lowest offered, $250, takes the monthly bill for the plan to $40. That’s a $480 annual bill.

    But then you hit the fine print. These policies carry a 20% co-insurance rate, meaning you’re still on the hook for 20% of any bill incurred. All pre-existing conditions are excluded. And then comes the big whammy, buried in the contract fine print:

    “Annual maximum – maximum allowable payment under this ‘Policy’ for all combined claims is limited to $20,000 per year.”

    I loathe back-end caps on insurance plans. To me, they instill a false sense of security: You’re covered, but only if things don’t get too catastrophic.

    Now, to be fair to Purina, $20,000 is at least a respectable sum. I haven’t heard of many vet bills getting that high. But it still means you’re not really insuring against all expenses: You’re covering yourself for 80% of the amount above your deductible and below $20,000.

    Kea’s bills for his dental adventure totaled $650. That wouldn’t have topped his deductible unless I’d picked the lowest deductible, *and* picked the plan that covers preventative care. If I had, Purina would pay $320, leaving me with a $330 bill.

    … but I’d also be paying $480 for the year for the insurance, meaning my total outlay would be $810, vs. the $650 I ended up paying. And I’d be paying that $480 every year, meaning my total insurance-premium outlay for a 15-year lifespan would be $7,200. Add in the deductible, and Kea’s total lifetime vet bills would have to exceed $11,000 for me to come out ahead.

    I checked the numbers on VPI Pet Insurance as well, another popular option. There, the annual cap is $9,000, unless you pay extra for the VPI Superior Plan, which caps at $14,000 annually. Adding “CareGuard” for routine coverage costs extra, and so does added cancer care; with those, I’d be looking at an annual bill of $429 — for a plan that excludes “hereditary conditions” (ie, “all the things most likely to mess up Fido”) and came with so many other caveats and exclusions I totally lost track.

    Pet insurance can pay off, of course. Sometimes the dice comes up all sixes.
    A friend of mine got whopped with a $10,000 vet bill last year for his two-year-old cat’s sudden kidney crisis; a plan like Purina’s would have offset a bit chunk of that.

    But most people with pets don’t have just one; David and I have had three cats in the decade we’ve been together. (One we lost last year, heartbreakingly young, to a sudden lung cancer. Total vet bills incurred in her nine-year life, including the final round: about $2,500.) Any one of our critters could suffer a nasty and expensive health crisis. But the odds are good that I’m better off skipping the $960 a year it would cost to insure my two current cats and instead absorbing the occasional, larger bill.

    You can make that argument about most forms of insurance, of course. I’ve been paying $1,500 or so a year for health insurance for 12 years now, and in that time I’ve never used $1,500 worth of medical services within the year. So why am I happy to keep paying my premiums each month instead of socking away an $18,000 buffer against future catastrophe?

    Because if my cat gets cancer, I’m looking at a $2,000 to $15,000 bill. If *I* get cancer, I’m looking at a bill that could easily pass half a million dollars

    That’s why I buy insurance for me and David, and skip it for the feline family members.

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