‘Doggie’ Howser, MD: Exploring Pet Insurance

Life Lesson #6 The house always wins

I am the proud “parent” of Sawyer, an 8-year-old golden retriever.  While a great friend and hiking companion, Sawyer struggled to learn some of the basic commands during early puppy training.  This made it all the more surprising when he started to understand personal finance a bit later in life.

The Story: Some breeds, like golden retrievers, are prone to cysts.  These fatty deposits develop just under the skin and can sometimes become problematic, requiring medical intervention.  Sawyer had one of these cysts and was scheduled for a $500 surgical procedure the following week.

As if Sawyer was somehow able to sense my economic anxiety and channel my financial philosophy, he scratched open the cyst with his hind leg.  Bear in mind, Sawyer had ignored this cyst for several years.  It was only after the surgery was scheduled and cost revealed that he finally took action.

Upon my discovery, what ensued was a lovely at-home medical intervention.  Pardon the graphic visual, but rinsing out a cyst pocket with sodium chloride was not on my bucket list.  I will spare all of the unnecessary details, but let’s just say I should have been bestowed an honorary veterinary degree.

A complimentary trip to the vet confirmed the surgery was no longer necessary.  A few weeks in the ‘cone of shame,’ some hydrogen peroxide and antibiotic ointment, and Sawyer was as good as new; and his owner $500 better off.  While not every breed, or even dog, can be trained in personal finance like Sawyer; there is another important lesson to discuss.

The Breakdown: When we adopted Sawyer, his breeder recommended against pet insurance.  Instead, she encouraged us to save the pet insurance premium money, and earmark it for inevitable future veterinary bills.

First, we have to ask ourselves what insurance is.  Ultimately, insurance products are simply the transference of risk.  What does that mean exactly?  In this example, the predictable and recurring premium you pay to the insurance company, transfers the risk of an unpredictable and potentially substantial veterinary bill from you to the insurance company.

Sometimes insurance is important and required by law (e.g., car insurance).  Other times it’s a valuable product that can allow you to transfer risk of loss-of-income in the case of death (e.g., term life insurance).  And sometimes it’s really unnecessary altogether.

Insurance companies are in the business of making money.  The same holds true for other products that are insurance, but go by different names (e.g., extended warranties).  Just like a casino, the house has the advantage.  They have highly paid PhD actuaries, smarter than all of us, who have developed rate schedules designed to drive profits.

It probably comes as no surprise, but I track every expense – meticulously!  I have included a table below that summarizes the cost of raising Sawyer:

The highlighted box is where we need to drill in.  I’ve spent almost $3,500 on Sawyer’s wellness checkups and more unfortunate visits over the last 8.5 years.  On average, about $34/month.

The table below shows the costs in today’s dollars for pet insurance through a well-known pet insurance company.  The costs are broken out for each year of a dog’s life until the age of 8.5.  Since a $250 deductible needs to be reached before the insurance kicks in, the years without the deductible would need to be covered out-of-pocket.  Additionally, the exam fee is not covered and there is a 10% copayment.

As you can see, in the best case scenario this option is over $4,600 more expensive.  In fact, the monthly average exceeds what I have paid for all of Sawyer’s expenses in total.

With limited exception, the house always wins!