Premiums are set by specialized mathematicians called actuaries. Actuaries use complicated formulas to predict the total dollar amount of claims expected to be paid compared to how much premium is collected on a large group of pets. The premiums must be higher than the claims expected to be paid for the company to be able to stay in business.
Accident Coverage Versus Illness Coverage
Policies are available from most companies to either cover accidents only or accidents and illness. Accident coverage is specifically for injuries such as a broken bone. Companies can define what they consider an accident and what they consider an illness. Just because you as a pet owner believe a condition was an accident, a pet insurance company may not agree with you. How a condition is defined can determine how a waiting period applies. Typically, accident coverage begins immediately or within 48 hours of the Effective Date of the policy and illness coverage is subjected to a period of time after the Effective Date before coverage begins.
Annual Policy Limit
This the total amount a policy will pay for all claims combined in a policy year. While some policies have an annual limit, others do not.
When a condition has occurred on one of two areas of the body, the area that has not been effected is still excluded from coverage. A classic example found in some insurance polices would be when there was a previously torn ligament in one knee (cruciate tear) before coverage, the opposite knee would be excluded from coverage even though it was not affected.
Claims and Claims Loss History
When you, the pet owner, send in your veterinary invoice with a company claim form for reimbursement, this is referred to as a claim. As claims accumulate over time on all the policies that a company has issued, the company develops a claims loss history. This is represented as a percentage of all premiums collected. Many factors can influence the claims loss history, such as insuring too many pets that get sick, setting premiums too low, claims fraud, etc. Excessive claims loss history results in the need to raise premiums.
Co-insurance (or) Co-pay
With pet insurance, these terms are often used interchangeably. In human health, a co-pay is the amount you would pay for a visit to the doctor, but in pet insurance, a co-pay or a co-insurance is the percentage the company will reimburse you for the total cost of eligible conditions after the deductible is met. Co-insurance is stated as a percentage. For instance, if a policy has a 90% co-insurance, this means the pet owner is responsible for 10% of the eligible amount after the deductible and the insurance company is responsible for 90%. If you file a claim for $500 of eligible expenses and the policy has a deductible of $100 with a 90% co-insurance, you would be reimbursed $360. The example above is for companies that apply the deductible first and then calculate the co-pay/co-insurance. Some companies apply the deductible after the co-insurance/co-pay is calculated. This changes the amount you would be reimbursed slightly.
As veterinary care becomes more expensive and claims submitted continue to increase over time, this is referred to as claims inflation. Claims inflation ultimately leads to premium increases since the insurance company must maintain a difference between premiums and claims paid to stay in business.
Claims Risk Management
A few companies will adjust your premiums, deductibles or co-insurance amounts if you have an excessive number or dollar amount of claims. This is done to prevent having to raise premiums on all policyholders.
This is the amount you are responsible for paying before any insurance benefits are available to you. Some companies offer the deductible on an annual basis, while others offer the deductible on a per- incident basis. An annual deductible is the total deductible amount you are responsible for each policy period. A per-incident deductible is the amount you are responsible for with each separate condition you claim for in a policy period. For instance, if your pet had a broken leg and had pneumonia in the same year, you would pay two deductibles if you had a per-incident deductible plan.
Some pet insurance providers offer premium discounts for numerous factors. A common discount is given for multiple pets enrolled from the same household. Others offer discounts for policies purchased online, reducing the cost to the company. Discounts must be filed and approved by each individual state.
These are conditions that are either generally excluded conditions listed in the policy document or specifically excluded for your pet as a pre-existing condition. Exclusions are not covered and are ineligible for reimbursement.
These are defined as conditions that are covered under your policy and not stated as exclusions by the policy or by the addition of pre-existing exclusions.
Fraud and Misrepresentation
Fraud and Misrepresentation occur any time a potential or existing policyholder answers an underwriting question untruthfully in an attempt to get coverage for a condition that would not normally be covered. This occurs by hiding the fact that a pre-existing condition exists, intentionally misstating a pet's age or breed, applying for a policy after an illness occurs, giving false information to obtain coverage, etc. Fraud and Misrepresentation also occur if there is an attempt to alter the facts on a claim in an attempt to receive reimbursement that is not warranted. All that is required to avoid fraud and misrepresentation is to answer questions truthfully to the best of your knowledge and not modify the facts on a claim.
Hereditary and Congenital Conditions
Many breeds are susceptible to hereditary and congenital conditions. A hereditary condition is one that is genetically transmitted. A congenital condition is one that is present at birth. Different companies define these conditions as to how they will be covered or excluded from coverage.
Intervertebral Disc Disease (IVDD) in Dogs
Intervertebral disc disease (IVDD) is a condition where the cushioning discs between the vertebrae of the spinal column either bulge or burst (herniate) into the spinal cord space. These discs then press on the nerves running through the spinal cord causing pain, nerve damage, and even paralysis.
Policy Effective Date
This is the date that the insurance policy goes into effect.
Policy Expiration Date
This the last date the coverage is available during a Policy Period.
Most pet insurance policies are contracts for one year. This is referred to as the policy period. It begins on the Policy Effective Date and ends on the Policy Expiration Date.
These are medical conditions that your pet has experienced prior to the policy effective date and are excluded from coverage. No pet insurance company covers pre-existing conditions. However, different companies have varying definitions of pre-existing conditions. Some pre-existing conditions are treated as permanent exclusions and others are treated as temporary exclusions. This varies by company.
The amount of money you pay each month to transfer the risk of your pet's covered medical expenses to the insurance company.
Underwriting a Policy
Underwriting can have two definitions. Policies in general are underwritten by an insurance company. This basically means the insurance company is guaranteeing that the claims will be paid. When a company underwrites an individual policy, this refers to the process of asking questions about your pet’s medical history, breed, age, etc., to determine the premium and if any exclusions should be added to the policy. Companies vary on how they underwrite a policy. Some companies will underwrite a policy after the policy is issued by gathering the information at the time of the first claim. Retroactive exclusions at the time of first claim can be added if pre-existing conditions are identified.
Usual and Customary
Usual and Customary refers to the amount the average veterinarian would charge for a covered
medical expense. This is a very vague term in veterinary medicine since there are really no established U&C guidelines. Therefore, pet insurance companies are at risk that some veterinarians could overcharge when they know a pet has insurance coverage. Some policies contain these clauses in an attempt to prevent overcharging, while other policies do not have this clause.
Most policies have waiting periods. Beginning with the Policy Effective Date, coverage does not begin and conditions are not covered until the end of the waiting period. Most coverage begins immediately or within 48 hours for accidents and the waiting period for illness varies by company (usually between 14-30 days after the Policy Effective Date).
Wellness / Preventative Coverage
Some policies offer wellness/preventive coverage. This coverage is for vaccinations, deworming, teeth cleaning, heartworm testing, and other care for your pet that is done on a routine and scheduled basis.