How Are Pet Insurance Premiums Calculated?
Pet insurance premiums are based on risk factors associated with the likelihood that your pet will have injuries or illnesses requiring veterinary treatment and how much these treatments cost. The main factors that determine your pet insurance premium are:
- Your location
- Whether your pet is a cat or a dog
- Your pet's breed
- Your pet's sex
- Your pet's age
- Whether your pet is spayed or neutered
The choice of these factors is not random. Laura Bennett, CEO and Co-founder of Embrace Pet Insurance, is an actuary and expert in insurance. One of her jobs is to ensure that we fairly and accurately calculate your pet insurance premium. We look at mountains of data and figure out using statistics what is a fair amount to charge.
Why do we use so many factors to determine your pet's premium? The answer is that it's the fairest approach. For example, the cost of veterinary care in New York City can be two to three times higher than similar care in a rural area like Dubuque, Iowa. Why should a pet parent in Dubuque pay the same as one in New York when the pet parent in New York is reimbursed more for her claim?
Your Location
Embrace uses location to determine premiums because veterinary costs vary significantly by location. Some pet insurance companies do not consider your location when calculating your premium, while others may use your state or your zip code instead.
Embrace uses your zip code when calculating your premium. By basing your premium on your zip code, we reflect the true veterinary costs in your area more fairly. Although we charge more in some zip codes, we always pay claims based on what veterinary care in your area costs so that everything is fair to all policyholders.
Cat or Dog?
All pet insurers charge more for dogs than cats because cats have fewer unexpected illnesses and injuries than dogs. That doesn't mean that visits to the veterinarian for cats are less expensive than for dogs, just that they don't go to the veterinarian as often.
Your Pet's Breed
Some breeds are more likely to get certain illnesses or to develop certain genetic conditions than others.
For example, in the academic paper Association of breed with the diagnosis of congenital portosystemic shunt in dogs, the author found that Chihuahuas were nearly 5 times and Yorkshire Terriers nearly 60 times more frequently diagnosed with congenital portosystemic shunt than mixed breed dogs.
Your pet insurance premium should reflect the increased risk of illness or disease in a given breed. This may increase your premium but breeds that are responsibly bred and that suffer from relativey few genetic and congenital problems receive lower premiums.
Some pet insurance companies highlight that they do not vary their premiums by breed but they can do that because they do not cover genetic conditions.
Your Pet's Age
Most pet insurance companies use your pet's age as a factor in determining your pet insurance premium.
Just like humans, as pets age they get sicker and have more and higher veterinary bills than when they were younger. Also, just like children, puppies and kittens are more likely to develop an illness or injury than an adult dog or cat because they are less coordinated and do not have fully developed immune systems.
Some pet insurance companies do not change the premium until the dog or cat reaches a certain age, somewhere around 6 to 8 years old. This means that younger pets are paying too much and older pets are paying too little. Some pet insurance companies do not use a pet's age at all, which means that younger pets are paying too much and older pets are not paying enough.
At Embrace we use your pet's age in determing your pet's premium. All other things being equal, younger pets pay less than older pets. This reflects the underlying reality that older pets get sick more often and when they do it costs more to treat them.
Spayed or Neutered?
Pets that are spayed or neutered tend to have a lower risk of certain diseases and illnesses so they receive a lower premium. For example, spayed females are less likely to get mammary cancer and it eliminates the possibility of a uterine infection. Neutered males are less likely to have problems with their prostate and the risk of testicular cancer is eliminated.