Should you buy pet insurance?

By Liz Pulliam Weston

A few years ago, pet insurance would have ranked right up there with life insurance for children and dread-disease coverage on my list of policies you don't need.

Now I'm not so sure.

I still believe most people are better off forgoing pet insurance and instead putting the money they would have spent on premiums into a savings account. Pet coverage can cost $2,000 to $6,000 over the life of an average pet, and the chances are slim you'll ever need to shell out that much for treatment.

But if you're the type of person who would do anything to save your pet, including spend thousands of dollars on medical care, pet insurance might be a preferable alternative to going into debt.

New treatments and monstrous bills

What's changed in recent years is the state of veterinary science, as well as the economics of running a veterinary practice. Vets today can offer treatments that were unheard of just a few years ago -- and at prices that could make you howl. Consider:

• Treatments once reserved for humans, from radiation therapy to kidney transplants, are now available for pets. That means once-fatal conditions are now treatable at costs ranging from $1,000 to more than $5,000.

• Vets have access to increasingly sophisticated and costly diagnostic tools, such as MRIs. Such screenings not only boost the cost of exams but often detect problems that once would have gone unnoticed and untreated.

• These expensive tools and procedures have helped create health care inflation in the pet doctor world.

Americans are expected to spend nearly $11 billion on veterinary care in 2008, according to the American Pet Product Manufacturers Association. That would be an 8.5% increase from 2007.

But pet owners with insurance are still in the minority. Less than 3% of the nation's estimated 71 million pet owners have policies, although that number has grown from less than 1% in 1995.

Insurers have teamed with the American Kennel Club and Petco Animal Supplies to offer the insurance, and more than 1,600 companies -- including Office Depot and Google -- provide the coverage as an optional employee benefit.

Deductibles, exclusions and surcharges

The oldest pet insurer, Veterinary Pet Insurance, has seen its revenue climb at a 26.8% annual rate since 1998. The company, which has about 71% of the U.S. pet insurance market, had gross sales of $149 million in 2007.

Pet insurance is far from a cure-all, though:

• The policies typically have deductibles, co-pays and caps that limit how much will be paid out annually.

• Pre-existing problems and hereditary conditions, such as hip dysplasia in retrievers and German shepherds, are normally excluded, although one insurer, Embrace Pet Insurance, covers hereditary and chronic conditions.

• The older your animal, the more you'll have to shell out in premiums. Some insurers don't cover pets older than 9; others levy stiff surcharges.

Veterinary Pet Insurance, for example, offers two levels of coverage:

Item	Standard Plan	Superior Plan
Per-incident deductible	$50	$50
Co-pay	10%	10%
Cap per accident or illness*	$2,500	$4,500
Annual cap	$9,000	$14,000
Kitten premium**	$113	$193
Mature dog premium***	$268	$471
Adult cat premium****	$94	$164
Adult dog premium*****	$134	$239

* The Standard Plan pays up to $780 for removing a foreign object from an animal's intestines; the Superior Plan pays up to $1,363.

**Annual premium for a domestic shorthair less than a year old in Los Angeles.

***Annual premium for an 8-year-old Labrador retriever in Los Angeles.

****Annual premium for a 3-year-old cat in Seattle.

*****Annual premium for a 3-year-old mixed-breed in Seattle.

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