3 Reasons This Kind of Insurance Coverage May be a Big Ripoff

These huge problems with a common type of insurance may mean you should save an emergency fund for your pet instead.

Christy Bieber
Christy Bieber
Feb 24, 2019 at 12:15PM
Investment Planning

Having the proper insurance coverage is important to protect against financial loss. There are several types of policies you should absolutely buy, including auto insurance, health insurance, and homeowners or renters insurance. But if you're someone with a four-legged loved one, what about pet insurance? 

Pet owners spent around a billion dollars on pet insurance last year. The question is -- is this cost really worth it? We spoke with several pet owners who have been disappointed by their policies to find out. 

Dog on a pile of money with a bill in his mouth

Image source: Getty Images.

Is pet insurance a ripoff?

Coverage under pet insurance policies vary based on the policy you choose, but most purport to cover serious illnesses and injuries from accidents. 

My husband and I considered coverage for our two dogs many times, ultimately opting against it by choosing to save a pet emergency fund instead. When my dog was diagnosed with mitral valve disorder in September and needed expensive medication, cardiologist visits and surgery, I wondered if we made the right choice -- until I started to talk to other pet owners about their bad experiences with their insurance coverage. 

The array of problems so many pet owners encounter when trying to use their coverage begs the question: Is pet insurance worth its cost? The three biggest problems with pet insurance are listed below.

1. Pet insurance policies aren't automatically renewable

The single biggest problem with pet insurance policies is that insurers have discretion about whether they renew your insurance coverage and at what price. Unfortunately, for pet owners like Dr. Bernadette Pivarunas, this discretion meant losing the coverage she'd relied on after paying premiums for more than a decade.

Dr. Pivarunas said she chose her pet's health insurance policy with a $300 deductible and 80% reimbursement rate, because it promised coverage for life with no per-incident or lifetime limit, as long as coverage never lapsed. She dealt with annual premium increases of 9.5% or more per year without complaining to keep her coverage.

Unfortunately, once Dr. Pivarunas made expensive claims for her dog's herniated disc in 2016, things went downhill quickly. The year after she made these claims, the pet insurance carrier increased her premiums by 71.6%. Still, she continued to pay to keep her unlimited coverage. Unfortunately, on January 2, 2019, she was told she'd be unable to renew her policy under its current terms.

Although she'd paid more than $12,200 in premiums and she never missed a payment, the insurance carrier would only renew her policy with a $15,000 cap instead of unlimited coverage; a 70% reimbursement rate instead of an 80% rate; and a $500 deductible instead of a $300 deductible. Customer advocates told her there was nothing they could do and this was the only coverage she could get with her claims history. 

Unfortunately, this isn't an isolated incident. Samantha Gold is a pet policyholder who said she paid around $3,900 in premiums from 2013 to 2018. While she was happy with the coverage at first because they paid her claims, after six years -- and some costly medical care for her pup -- the carrier told Gold that she wouldn't be able to renew unlimited coverage, and she was now restricted to a policy with a $15,000 limit. 

When pet insurers unilaterally change policy terms over the protests of policyholders and despite promises of "lifetime coverage," pet owners are left in a difficult position. Switching to a different insurer is impossible because new policies won't cover pre-existing conditions, so they're forced to opt to either discontinue coverage or pay much higher premiums for much less coverage than they'd signed up for. 


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2. Pet insurers often reimburse you instead of paying up front

Another major problem with pet insurance policies is that you often have to pay up front for your pet's treatment and then submit claims for reimbursement. And, while some companies pre-approve or pre-certify claims before you pay for services, this isn't always possible.  It's easy to see why this could pose a problem if your pet needs very expensive care -- you may not have the money available to pay up front.

If your pet needs surgery or chemotherapy that costs many thousands of dollars, you could be stuck putting the payments on a credit card and hoping your pet insurer follows through on reimbursement you so you don't end up with mounting debt. Further, if you don't have the money to fund the procedure, your pet may not be able to get care at all, even if your insurance should cover it. 

3. Pet insurers have broad discretion to deny claims

Pet insurers also have a lot of discretion to deny claims for various reasons, including claiming the condition was pre-existing or genetic or claiming that the treatment was "experimental." 

When a pet insurer denies a claim, you'll have to go through an internal appeals process. If this fails, you can make a complaint to your state's Department of Insurance, which may conduct an investigation into the denial. Older reports from California indicate the CA Department of Insurance receives almost 100 complaints about pet insurance coverage annually, many related to denial of coverage for "pre-existing conditions." The majority of these complaints are resolved in favor of the consumer. 

Unfortunately, not everyone will get resolution from their state's Department of Insurance. While you can take legal action on your own if an improper claim is denied, doing so may be costly and challenging. And, by the time the claim is resolved, it may be too late to get your pet the needed treatment or you may already be deeply in debt for treatment you paid for but weren't reimbursed for. 

Can you protect yourself if you buy pet insurance?

Unfortunately, it's difficult to protect yourself against these problems when you buy pet insurance, but it can still be worth considering.

You can, and should, read the fine print on any insurance policy carefully to find out about the rules for renewing coverages, premium increases, and coverage exclusions. You can also check ratings and consumer complaints about pet insurance companies you're considering. 

Alternatively, you may decide to do what my husband and I did and save money each month for your pet's care. We were able to get Molly the surgery she needed abroad -- which no pet insurance policy would've covered since it was out the country -- and we didn't have to get anyone's permission to get her the medication she needed as soon as her heart began having problems.

But, if you take this approach, make sure you're diligent about saving and don't touch the money because you don't want to be unable to afford the care your pet needs if illness or injury occur.