Tips for Living Well with Your Dog: Money and Insurance

Best way to insure your pet

Last of a five-part series

For a dog owner planning to buy pet insurance, the options are head spinning.

In 2007, nine companies were offering pet insurance, two more were added to the pack in 2008 and now dozens are offering it, according to the American Pet Products Association. And insurers' plans differ from each other and many companies offer a menu of choices with differing levels of coverage.

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The dozens and dozens of policy options with premiums ranging from low to high can make any owner feel like a dog chasing his tail. It is easy to feel overwhelmed and simply want to give up.

But buying no pet insurance means a dog owner runs the risk of huge veterinary bills if his best pal gets a serious or chronic illness. Yet buying too much insurance means high premiums. And buying a less-expensive policy means less coverage.

This dilemma leaves many owners understandably feeling like the dog has a better chance at catching his tail than they do at finding the right pet insurance plan.

But the reality about pet insurance is found in the numbers and how they relate to risk. And an option exists that can limit the risk of getting clobbered by high veterinary bills without incurring staggering insurance premiums.

The best way to pay for a dog's medical expenses is a combination of pet insurance and self-insurance.

Here's how it works:

• Buy a pet insurance policy that covers only major medical expenses and hospitalization. The main purpose of insurance is to pay for major illnesses which otherwise would be unaffordable. Major illnesses are less likely to occur, and therefore these policies have lower, more affordable premiums. For example, a policy that includes coverage for routine care can easily double the premium and many have caps on the amount they pay for annual physicals and vaccinations. A policyholder usually pays about the same amount in increased premiums that he collects in claims for the routine care and must do lots of extra paperwork. Simply paying the veterinarian for routine treatment and cutting out the middleman - the insurer - is a lot easier.
• Buy the less-expensive major medical/hospitalization plan. Many insurers offer major medical plans with escalating levels of coverage. Some will come with higher annual payout caps, such as $9,000 versus $14,000 offered by one national insurer. But the annual premium for the higher payout is nearly twice as much, and those dollars can be better spent.
• Set up a separate savings account for your dog's major medical expenses. Use the savings from buying the less-expensive major medical/hospitalization plan without routine coverage to fund this account. For a 6-month-old dog, for example, the annual premium for the regular major medical plan without routine coverage from that same national insurer is $374 less than its top-level policy with routine coverage. Use this account only if you incur major medical expenses, such as surgery or hospitalization, that is not covered under your dog's insurance policy. Routine care expenses should be paid out of pocket. The idea is to give this nest egg time to grow.
• Make annual contributions and watch the account grow. Annual premiums increase more for the top-level policy as your dog ages, so ask the insurer what the premium would be for the top-level policy each year and contribute the difference to your veterinary savings account. Using our example, the $374 savings would become $390 when your dog turned age 3 and $468 at age 9. If a dog owner simply put this sum in a one-year bank certificate of deposit, this would turn into a tidy nest egg. With a 4 percent rate of return - the current national average on one-year CDs - a nest egg would become $5,152 when your pal is age 10, $6,565 at age 12 and $8,905 at age 15!

Setting up the account is most effective when your dog is a puppy, but do so now regardless of your best pal's age. A dog owner who sets up this program when their pooch is a pup can accumulate a tidy sum for potential veterinary expenses because of the power of compounding interest. But even those who have middle-aged or elderly pals can still benefit. They may consider making a larger catch-up deposit when opening the savings account if possible. For example, if your dog is five, calculate what you should have placed into the account for those five years.

Those who lack the discipline to set up and annually fund an account for veterinary expenses should buy the more-expensive major medical/hospitalization plan without the routine coverage rider. This policy will cost you more in premiums, but it will give you the financial ability to provide your dog with quality medical care if the need arises.
Either way, a responsible dog owner should make provisions for major veterinary expenses and that includes buying an insurance policy that covers major medical conditions and hospitalization.

Like people, most dogs live reasonably health lives until they become elderly. So if your pal has a lot of medical expenses in his senior years, you will have the insurance and resources from your savings account to provide quality medical care. But in many cases, dogs do well until their time comes. If the end comes suddenly with few medical expenses, then you will have a tidy nest egg to use for whatever you want.

Money and Pet Insurance:
Part 1: Save a bundle on food, products, care
 Part 2: Ways to save on prescription drugs
 Part 3: Tips for buying pet insurance
 Part 4: Dealing with pet insurance companies
 Part 5: Best way to insure your pet

I suggest leaving it in the account and earmarking it for the medical expenses of your next loyal companion.

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