Pet Insurance: What it is, History, How it Works

Pet insurance is a policy that helps pet owners reduce the financial burden of veterinary care. Like human health insurance, it covers part or all of the cost of expensive procedures, depending on the plan.

To find the right coverage, it’s important to compare plans based on your pet’s needs and your budget. Policies vary in terms of what they cover and how much they reimburse.

Most plans include a deductible an amount you pay out-of-pocket before coverage starts. Premiums are often based on the average vet costs in your area, and not all procedures are covered, so reviewing policy details is essential.

The bond between humans and animals runs deep many pet owners treat their pets like family. Thanks to advances in veterinary medicine, pets now have access to specialized treatments once reserved for humans. But these procedures come at a cost. According to Betterpet, an emergency exam can run $100 $200, while an overnight stay may cost $1,000 $2,000.

Routine care like vaccines, blood work, and dental cleanings is essential, but costs add up. The ASPCA estimates annual preventive care ranges from $160 to $220. Meanwhile, demand is rising for specialty services like oncology and neurology.

For some, the fear of high vet bills can discourage pet adoption. Others may face heartbreaking decisions like economic euthanasia when treatment costs exceed what they can afford.

Pet insurance helps reduce out-of-pocket vet expenses, especially during emergencies. Like human health insurance, you’ll pay a monthly or annual premium, with costs shaped by several factors:

• Species: Dogs typically cost more to insure than cats due to size and higher claim rates.
• Breed: Certain breeds are prone to genetic conditions, raising premiums.
• Gender: Statistically, male pets generate more claims, so female pets often cost less to insure.
• Age: Older pets face higher premiums due to increased health risks.
• Location: Urban areas tend to have higher vet costs, which drives up insurance rates.

According to NAPHIA’s 2022 report, the average annual premium for accident and illness coverage was $584 for dogs and $343 for cats. The industry saw $2.3 billion in premiums for dogs and $300 million for cats, reflecting strong demand.

Most plans reimburse 80% of eligible costs, though some offer up to 90 100% coverage for select procedures. For young pets with minimal medical needs, insurance may not be cost-effective. But for older pets or those facing emergencies, coverage can deliver real savings.

Pet insurance has its roots in Sweden, where the first policy was issued in 1890. But it wasn’t until 1982 that the concept reached the U.S. and fittingly, the first American policy was issued for none other than Lassie, the beloved TV canine.

Since then, the industry has grown steadily. By 2021, over 4 million pets across North America were insured, according to the North American Pet Health Insurance Association (NAPHIA). What began as a niche offering has evolved into a mainstream financial tool for pet owners seeking peace of mind and protection from rising veterinary costs.

Even healthy pets come with essential medical costs. When the Fosters adopted Rufus, an adult rescue dog, they anticipated first-year expenses like routine care ($225), preventive meds ($185), and spaying ($300) totaling $710.

Given that the average pet insurance premium in 2021 was $584, the Fosters opted for coverage to protect against unexpected costs like emergency visits or additional diagnostics.

By year two, with Rufus stable and healthy, they chose to self-insure, paying vet bills out-of-pocket instead. This flexible approach shows how pet insurance can be strategic in high-risk periods, but optional when risks are low.