What Is Insurance For?
Many people go through life without worrying too much about insurance. You shove your policy into a box somewhere and hope never to see it again. It's a necessary evil, right? Have you ever asked yourself "What is the right amount of insurance to have were something terrible to happen?"
For example, if you're not married and you have no children, life insurance doesn't make a lot of sense because the payout is not going to protect anyone. But if you've got family then you'll want them to be provided for in case anything happens to you.
And many of us get our health insurance from our employers so you might expect pet insurance to work the same way and cover visits to the doctor, vaccinations, and so on. But there's a problem with this.
The problem is this: insurance becomes expensive when it takes care of the small things that you can pay for out of pocket. Why? Because a regular visit to the veterinarian is not an "insurable" event. So what do we mean by "insurable"?
The Four Laws of Pet Insurance
The best pet insurance charges you a small premium and protects you against something that:
- you do not want to happen
- is unlikely to happen
- comes without warning
- is expensive
Let's apply these laws to routine care coverage. Is it something you do want to happen? Probably, you want your cat or dog to be healthy and get her checkup and vaccinations. Is it unlikely to happen? No, you scheduled it last time you were at the veterinarian's office. And is it without warning? No, you do it every year. Is it expensive? Not usually. So routine care is a bad candidate for pet insurance.
And pre-existing conditions also fail the laws above because they do not come without warning - you already know about them.
The Right Way to Look at Insurance
Now let's apply the laws above to a dog that gets hit by a car. Is it something you want to happen? Definitely not. Is it unlikely? You bet. Does it happen without warning? Absolutely. Is it expensive? It can cost $2,000 or more to heal a broken leg, it's expensive alright. Protection against a car accident meets the definition of insurable. And to top it off it can cost thousands of dollars, unlike routine care.
So what's the advantage of looking at things this way? Well, it keeps pet insurance affordable. When you overinsure by covering even the itty bitty things, the person who ultimately ends up paying for it is you - in the form of higher premiums. Imagine how much more expensive your car insurance would be if it included oil changes, tire rotations, and a checkup every 10,000 miles.
One More Thing...
Insurance is not a form of forced savings. The idea behind insurance is called risk pooling. Put simply, risk pooling happens when many people get together and share their losses. If every member of the risk pool looked at insurance as a form of forced savings then the insurance couldn't exist because everyone would be taking money out by claiming!