Illustration of the Fetch 2022 summer interns.

Pet Insurance 101

Is pet insurance worth it?

Pet parents both young and old might have heard of pet insurance, but insurance can be confusing in general, and people can feel paralyzed by the number of options to choose from. So, our team of interns put our heads together in order to answer the question… Is pet insurance even worth it?

To do this, we considered many different perspectives. We read through literature on the value of pet insurance. We consulted experts in the field on the matter to get important insight on when one might need pet insurance. We scoured the internet for customer reviews and surveyed people on their thoughts about pet insurance. And we analyzed the real economic impact that purchasing pet insurance could have.

After conducting exhaustive research, we found that pet insurance is definitely worth it if you meet one or more of these three criteria: 

1) You can afford an average monthly pet insurance payment of about $25-$50, but would find it difficult to pay for a large, unexpected veterinary bill 

2) You treat your pet like a member of the family and want to provide them with the best care possible

3) Your pet is young and without any pre-existing conditions so they will be eligible for the most coverage.

Is pet insurance within your budget?

Literature Review: 

We looked at articles pertaining to the value of different types of insurance. Pet insurance of course, but also life insurance, auto insurance, health insurance and so on. What we found with these articles is that they make an effort to pinpoint the exact financial value of insurance, and when they see people put more in than they get out, they sound the alarms. The Washington Post recommends, “Instead of buying pet insurance… cutting those costs by shopping around for the lowest price on the veterinary services.”

We often see these articles giving what we would consider to be risky advice. The Washington Post wanted to be clear that costs can outweigh the benefits and price increases can occur. So, The Washington Post offers some alternate advice: consider shopping around for vet services in advance to find lower prices. If you want to forgo the insurance, that’s your choice, but you should understand that you are taking a risk. Telling people to shop around for cheaper care options is… tricky, to say the least. 

Finding cheaper care could save you money if you never need to take your pet to the vet — but if you do, you’re taking risks with their quality of care. And that could lead to larger health issues (and more vet bills). Plus, if you happen to run into an unexpected emergency with a particularly high cost, you could be out of luck. And if you can’t afford the vet bill — then what?  

You’re not exactly paying for insurance to get free money. It's risk management, so when a freak accident happens, you are covered as you have been paying regular premiums over time instead of having to pay for the full amount at once. So while you might save a little money without insurance, you’re trading peace of mind for fear of an accident requiring a huge payment.

To better illustrate, here’s an example not related to pets. Let’s turn to an article from macrumors.com on the value of AppleCare by Hartley Charlton. 

When exploring the question “Is AppleCare worth it?” Charlton makes no blanket statements. He knows the reader is going to make their own decision, so he empowers them by telling them what matters. The decision still “depends on how you use your Apple device, and how much risk and expense you are willing to take.” He can make this analysis much simpler. If your device is damage-prone, it’s worth it.  But the Homepod might not need the coverage as much as a mobile device. So as we are explaining the value of coverage, we should lay out all the facts, and then ask again: Do you want peace of mind? Or do you want to save money?

In short, pet insurance is a great solution for people who are able to afford the monthly payments, but would find it difficult to pay for a costly, unexpected vet bill.

Economic Analysis:

The relationship between insurance companies and their customers is crucial to how insurance works — insurance companies are responsible for paying the losses back to their insured customers. Without this relationship, a customer wouldn’t be inclined to purchase a policy with the company, which begs the question: At what point is it beneficial for both the customer and the provider? All of the current pet insurance companies have grown to offer a variety of different types of policies at the convenience of their customers, covering everything from a larger premium for full coverage of claims, or some combination of a deductible and a smaller premium for lesser coverage. Their goal is to find a balance in which the price of the premium (and its terms and conditions) is “worth it” to both the insurance company and the customer. 

To determine whether or not an insurance policy is worth it for a consumer, we must understand the demand for insurance — the solution to the problem of maximizing a utility function. This is taken from the theory of preferences under uncertainty, and is more commonly referred to as the Expected Utility Theory. The theory recommends what a rational individual should choose in a complex uncertain situation based on their risks and preferences. When an action could result in multiple different outcomes, an individual should choose the action with the highest expected utility. This is calculated using the products of possible outcomes with the probability of them occurring.

In the case of pet insurance, the utility of buying a policy can be greater than just saving the money. The risks that are associated with pet insurance can include the gender, age, common breed problems and personal health history of the specific pet. Preferences can include the amount of premium, reimbursement level, benefits and wellness plans that come with the insurance policy. 

Savings Account vs. Insurance:

Some articles suggested that getting a savings account might be better than having pet insurance. In our view, it’s risky to have only a savings account, because there is no way to know when an emergency might happen or how much it would cost. 

For example, you’ll get $3,000 on your pet savings account after saving $50 every month for five years. This might be enough for diagnosis, initial testing, and basic treatments. But if there are unexpected injuries, cancer or chronic conditions that require recurrent visits, the cost may get as high as $10,000, which is far over budget. The $3,000 you’ve saved is roughly equivalent to 5 years of pet insurance premiums. As a pet insurance policyholder, your monthly investment of $50 ensures your financial safety by covering far above the amount you saved.

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The example above indicates that having only a savings account may not be able to cover large treatments unless the amount saved is significant, and there’s the possibility of draining your savings with just one incident. In comparison, pet insurance has an annual limit that resets every year and ensures you would receive a significant portion of the paid vet bills. Having a pet insurance plan allows you to remove the financial aspect out of your consideration and base your medical decisions purely on what’s best for your pet, so that you can make the best choices when an emergency arises instead of the least expensive ones.

Therefore, the best way to use a savings account is by making it complementary to insurance: insurance could help pay for those unexpected large expenses before you have adequate savings in reserve, and savings can help pay for any uncovered expenses of insurance.

To sum up, the value of the insurance plan varies among customers. It largely depends on the wealth of the customer and whether or not the cost of vet fees is worth stressing about. If someone cannot afford pet insurance in the first place, the policy is of no value. The same can be said for someone wealthy enough to cover the veterinarian charges out of pocket. For customers in the middle ground, they should be prepared to pay for the premium that comes with the plan, as long as the loss ratio supports their claim. In exchange for a specific percentage/amount of deductible, an insured customer should be ready to pay from each loss and still be satisfied paying for insurance coverage.

Do you consider your pet a member of your family?

Survey:

If a pet owner considers their pet as a beloved member of the family, it will boost their desire to protect their health. We found that having an emotional attachment to their pet is one of the main deciding factors for pet owners. Being unable to afford a life-saving treatment can crush a family making insurance a sure safety net for many. 

We created a survey with questions about insurance and sent it to an anonymous unbiased group of over 500 people in both the United States and Canada. We asked what type of pet they had, if they had heard of pet insurance, and if they think that pet insurance is worth it to them. This survey gave an insight to the progressive spread of knowledge about pet insurance and if what is advertised to consumers is influencing their opinion. 

Our main focus was to see how many people would say pet insurance was worth it — and a large percentage did. Additionally, 44% said maybe. And 75% of surveyors said they had indeed heard of pet insurance.  We believe these results indicate a shift in how parents value their pets, with a large increase in people viewing them as part of their family. 

We also interviewed seven people we personally knew, and almost none of them had heard of pet insurance — even people who owned at least one pet. Even still, the majority of the seven who were interviewed would consider, maybe, purchasing pet insurance in the future. Even with them not knowing much about it, they do in fact value and consider their pets to be a part of their families. The way we see animals over the years has changed. When our parents and grandparents were growing up, no one even thought pet insurance for animals would be a possibility. 

The bottom line is if you see your pet as another special member of your family, the more likely you are to consider purchasing pet insurance. 

Do you have a young pet with no pre-existing conditions?

Experts Opinion:

After consulting with professionals in the veterinary and insurance fields, we’ve gained valuable new insight into the value of pet insurance. Dr. Audrey Ruple, a veterinarian and professor, mentioned that comprehensive pet healthcare can have the potential to predict health concerns in advance, as opposed to after the fact. Insurance policies would be capable of meeting the specified health needs of each pet based on the recommendations and predictions that are formulated, giving way to a much more preventative outlook on pet health.

The rapid development of new technologies is also something interesting to note. Pet healthcare has gotten and will continue to get progressively more expensive. This is because of increased specialization through technology (e.g. a veterinary kidney specialist). Dr. Ruple tells us that with this increased specialization and more developed technology for diagnosis, pet insurance is a great way to combat the fees that come with a veterinary visit. Jeff Casey, Vice President of Customer Success at Fetch by The Dodo, also believes that with technology, uploading documentation of medication and claims will become auto-approved, which will smooth out the claims processing operation and greatly improve the customer experience.

Experts have stressed that before deciding whether or not pet insurance is worth it, customers should be able to fully understand their insurance packages. They’ve found that there are many misconceptions about pet insurance that have an impact on insurance plan purchases including concerns about coverage, ease of claims and price. Brianna Epstein, a Performance & Digital Marketing Specialist at Fetch by The Dodo believes that pet insurance companies should soon be able to make the transition to using more layman terms to explain complicated insurance language. This will make it easier for everyone to understand exactly what is covered by their plan, and allow pet parents to know exactly how to care for their pets, while still keeping their finances in order. 

Katerina Clark, the Director of Growth Marketing at Fetch by The Dodo, brought up some common misconceptions. These include the notion that pet insurance is similar to human health insurance, that cats don’t need pet insurance and that claims are always just ignored or rejected. As a result, customers aren’t able to fully understand the benefits of pet insurance and whether or not it’s the right fit for them. 

Most importantly, policyholders have the benefit of smoothing over “shock expenses.” David Zollenberg, the Chief Financial Officer at Fetch by The Dodo mentions that even if you consider yourself “high income,” it might make sense to use insurance. While some can technically afford the expenses of pet healthcare, they might not always have access to liquid money. “Let the insurance do what insurance does — smooth it out!” 

Brianna Epstein also spoke from personal experience, stating that she’s spent almost $20,000 dollars on pet healthcare — a testament to when pet insurance would be useful. People may not realize how high the unexpected cost is and how helpful the insurance would be until they need it. Having the option to use insurance rather than saving up the money on your own can be greatly beneficial, depending on how each customer personally likes to manage their income.

So… is pet insurance worth it?

We started this project to attempt to answer this not-so-simple question. Through hours of extensive research, talking to customers as well as potential customers and conducting expert interviews, we found that pet insurance is right for you under certain conditions. If you’re able to afford the monthly insurance payments and a major unexpected bill of a couple thousand dollars could be a serious hardship, pet insurance would be a smart choice for you. If you consider your pet family and want to offer the best treatment and care possible for them, you should think about getting a policy for your pet. And finally, if your pet is young and doesn’t have any pre-existing conditions, pet insurance is a valuable purchase to ensure that they’re covered for any illnesses and injuries they may experience in the future. Fetch covers pets at any age — just be aware that the monthly payments will be higher since older pets are more likely to experience more illnesses and injuries with age (and will cost more to insure as a result).

Whether you consider yourself a pet owner or pet parent, you know what’s best for you financially. Before making a decision, research pet insurance providers and get familiar with what they offer, so that you can ensure your pet lives a long and healthy life.

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