How to Choose the Right Pet Insurance Plan

Veterinary care is better than ever — our cats and dogs are living longer, tools like X-rays and ultrasounds catch serious problems early, and many life-threatening conditions are now treatable.

But the price for that cutting-edge care is also at its highest. Pet owners in the U.S. spend over $4,000 a year just on routine veterinary care, according to a new survey by Money.com and Healthy Paws Pet Insurance.

When vet bills soar beyond your budget, the right pet insurance plan can help soften the landing. Here's our cheat sheet for buying the best policy for you and your pet.

How do I select the right pet insurance?

There are about 30 pet insurance companies issuing policies in North America, with varying costs, coverage options and exclusions. These five steps can help you narrow down your options.

1. Decide what type of plan you want to buy

Pet insurance companies divide their plans into three categories: accident-only, accident and illness, and wellness care. The right choice depends on your budget and your pet's age and health history.

Accident-only plans are relatively inexpensive and cover things like broken limbs or swallowed objects, not treatment for cancer, asthma or any other illness. This plan makes sense if you're on a tight budget or if you have an older pet that's too expensive to insure against illnesses. The monthly rate for an accident-only plan is $9 for cats and $16 for dogs, according to the North American Pet Health Insurance Association (NAPHIA).

Accident and illness plans, sometimes called major medical policies, cover both injuries and illnesses. These plans are more expensive than accident-only policies and are best for young pets with a clean bill of health and breeds that are at a higher risk of developing issues later. NAPHIA's report shows that dog owners paid an average of $70 a month for comprehensive coverage, while cat owners paid $36.

The last option is wellness care, a plan that's sold separately or as an add-on to pet insurance. This plan provides limited coverage for services that pet insurance doesn't cover: vet visits, vaccines, parasite prevention, dental cleanings, etc. That said, wellness plans can spread out the cost of preventive care but don't always save you money when compared to a dedicated savings account.

2. Review the policy's waiting periods and exclusions

If your pet was diagnosed with diabetes before you bought a policy, pet insurance won't cover insulin shots or anything that's related because it's a pre-existing issue.

The same applies if your pet is diagnosed during the policy's waiting period, which can last anywhere from 24 hours to 12 months, depending on the issue. For example, a company may delay accident coverage for a day and illness coverage for two weeks, but make you wait a whole year for hip dysplasia coverage. If you're worried that your pet may develop hip or other joint problems early, look for a company with a shorter waiting period.

The policy's exclusions and waiting periods should be clearly written in the sample policy if the insurer follows the best practices set by the National Association of Insurance Commissioners (NAIC).

3. Choose how much you want insurance to pay

Most companies allow you to choose how much they'll pay toward covered expenses. Two factors determine your payout: the reimbursement level and the annual coverage maximum.

The reimbursement percentage is the portion of the vet bill that insurance will cover after you meet your deductible. You can usually choose a reimbursement percentage between 70% and 90% (the remaining 10% to 30% is your copay).

The annual maximum is the most a company will reimburse in a policy year. You can usually choose a maximum of $5,000, $10,000 or unlimited. For most people, a lower limit is enough, but if your pet is prone to serious issues like hip dysplasia or cancer, you may deplete your policy's coverage before the year is up. Some companies also limit how much they will pay for specific illnesses, but unlike annual limits, these caps aren't adjustable.

As a general rule, the higher you go on these terms, the more expensive the policy is. Lower limits save you money on your premiums, but raise the out-of-pocket costs if you ever need to file a claim. Among pet owners surveyed by Money and Healthy Paws, 32% said that their policy reimburses 80% of eligible costs, while 52% have a deductible of $500 or less.

4. Pick a deductible that fits your budget

The deductible is how much you have to pay for veterinary expenses before your insurance coverage kicks in. In other words, if you set a $250 deductible, you have to spend $250 at the vet in qualifying expenses before you can file your first insurance claim. With most pet insurance providers, you can choose a deductible between $250 and $1,000. A lower deductible increases your monthly payments, but the insurer starts paying out sooner. In contrast, a higher deductible is cheaper upfront, but you will have to spend much more at the vet before the insurance company steps in.

5. Shop around and compare insurers

Rates, coverage options and exclusions can vary by company, so it's a good idea to compare several options. For example, not all companies cover alternative therapies like acupuncture and hydrotherapy, and a select few offer the option to pay the vet directly. If you're looking for specific services and benefits, make sure to review the fine print before signing up.

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