In observance of National Pet Health Insurance Month, our first post of September builds on previous posts covering the benefits of pet insurance and guiding pet owners through the complex purchasing process to choose the best policy to meet their needs and reflect their priorities and preferences.
Today’s post is about adjusting policy specifications to keep existing policies affordable and effective as, for a variety of reasons, premiums increase. Reasons for rising prices may include any or all of the following:
- The insured pet’s age
- Rising costs of veterinary care
- Changes in the insurance company’s ownership, management and/or underwriters
- Unexpectedly high claims payouts
For a detailed analysis of rising pet insurance premiums, see “Jump in pet insurance prices tests appetite for coverage” from the Veterinary Information Network News Service.
The incentives to keep the first policy you choose in force are strong—particularly if your pet has developed new medical conditions since the policy was issued.
Under a newly-issued policy, all your pet’s documented illnesses will be classified as pre-existing conditions and won’t be covered. You’ll also most likely face new waiting periods before full coverage is in effect.
In most cases, the best option is to keep the existing policy in force and reduce premiums by downgrading policy benefits so that the pet owner assumes more financial risk.
Key variables to consider adjusting:
- Deductible
- Coinsurance percentage
- Maximum payout
- Covered expenses
Keep in mind, adjustments to an existing policy can be made only in advance of the policy’s annual renewal date and in only one direction—toward reductions in the insurer’s financial risk. There’s no going back toward more generous coverage without starting fresh with a new policy, only this time with an older pet, new underwriting, waiting periods and all health problems now pre-existing.
The goal of adjusting an existing policy at renewal time is to rebalance risks to create a more affordable policy without cutting too much value. As you consider downgrading an in-force policy, remember why you purchased pet insurance in the first place and continue maintaining the best coverage you can afford.
Contact the insurance company as soon as you receive policy declarations for the coming year, ideally at least a month before the policy renewal date, to evaluate your options. Once you decide on the modifications you want, the company will prepare and send a revised policy declarations document reflecting the changes you’ve made and the new premium amount.
You can then renew your policy under these adjusted terms.
Increasing the Deductible
In most cases, the most dramatic reductions in premium come with raising the policy deductible—the eligible expenses you agree to cover up front before the policy begins paying benefits.
How much can you afford to pay before insurance coverage kicks in? Does the reduction in premium costs justify your taking on the additional financial risk of a higher deductible? Only you can decide.
As you consider raising the policy deductible, be sure you understand how the insurance company calculates the deductible amount you’ve paid.
While you might assume the deductible amount is simply your total out-of-pocket cost for covered veterinary care expenses, some insurers apply the policy’s coinsurance percentage to your payments in calculating whether you’ve met the deductible.
For a policy with 90% coinsurance and eligible expenses totaling $1,000, only 90% or $900 of the payments you’ve made count toward the deductible. Expenditures of $111.12 more will be needed to meet the $1,000 deductible. ($1,111.12 x 90% = $1,000)
Under this calculation method, the policyholder’s out-of-pocket expenditure on covered expenses to meet a $1,000 deductible with 80% coinsurance is $1,250. ($1,250 x 80% = $1,000)
Lowering the Coinsurance Percentage
Reducing the percentage of covered expenses the insurer will reimburse, once you’ve met the deductible, will reduce premiums—though not as dramatically as raising the policy deductible.
Have the customer service representative quote premium reductions for lowering your current coinsurance percentages—most likely 80% or 90%—by 10%.
As noted in the previous section, if your insurer applies the coinsurance percentage to your expenditures in calculating deductibles, a downward shift in coinsurance results in a higher out-of-pocket cost for meeting the deductible as well as reduced coverage of expenses once you’ve met the deductible.
It’s up to you to decide if the reduction in premium justifies your assuming the greater financial risk that comes with lowering the coinsurance percentage.
Lowering the Maximum Payout
As you explore options for reducing your policy’s maximum payout—applicable to the policy year or to the lifetime of the policy, depending on the contract terms—we encourage you first to visit the “Cost of Veterinary Care” page on the Healthy Paws Pet Insurance website.
There you’ll find a chart illustrating the rising costs of veterinary care, followed by cost estimates for treating the 10 most common health conditions in dogs and cats. Several individual cases profiled among the cited common conditions resulted in expenses far exceeding the estimates.
The next section, titled “Claims of Fame,” features a 2-year-old Labrador retriever mix whose claims for the year totaled $48,780 and a 4-year-old British shorthair whose claims totaled $29,282.
In light of the cases in which even common conditions quickly resulted in claims for tens of thousands of dollars, consider your ability to cover a $30,000 to $50,000 vet bill, should your pet be so unfortunate as to require that level of care.
Consider, too, why you bought the policy in the first place and weigh any premium reductions that come with lowering the maximum payout against the reduction in the value of the coverage in a worst-case event.
Eliminating Covered Expenses
If your policy has added-in optional coverages, such as exam fees, prescription drugs, rehabilitation and alternative treatment benefits, ask the customer service representative to quote the premium savings that would result if you removed each one.
The savings will most likely be limited, but if you are willing to assume the risks of covering costs you initially chose to have the insurer cover, consider removing those options from your policy.
Keep the Best Coverage You Can Afford
Remember, there’s no going back once you’ve reduced coverage. As when you first value-shopped for your policy, keep in mind the value you’re receiving in exchange for the premium dollars and take care not to cut so drastically as to render the policy worthless.
Keeping Kate’s Policy Affordable: A Case Study
Kate is a spayed, mixed-breed dog in the 20- to 55-pound weight range. She was 8 years old in mid-July 2019, when her owner bought her accident and illness policy.
The owner conducted extensive research in choosing Kate’s policy, following the process outlined in our five-part series on how to choose a pet insurance policy. (See links to the series below.)
Subject to the provisions detailed in the policy contract, Kate’s coverage includes—
- Unlimited annual payout
- Annual (rather than per-condition) deductible
- Office visits and exam fees
- Take-home prescriptions
- Rehabilitative treatment, acupuncture and chiropractic care
At the outset, the owner bought the best coverage she could afford, choosing 90% co-insurance and a $1,000 deductible. She elected to pay premiums annually rather than monthly, qualifying for a 5% discount. (Premiums quoted in this post do not reflect the discount.)
In the more than five years the policy has been in force, while she’s had some expenses for removing several sebaceous cysts—a pre-existing condition—and sedated grooming, which is not covered, Kate has had no reimbursable medical expenses.
Here’s how the policy terms evolved from year one to year four:
Policy Year 1 (2019-2020)
- Kate’s age: 8
- Co-insurance: 90%
- Deductible: $1,000
- Annual premium: $363.32
- Monthly premium: $30.28
Policy Year 2 (2020-2021)
- Kate’s age: 9
- Co-insurance: 90%
- Deductible: $1,000
- Annual premium: $440.97, up 21% over previous year
- Monthly premium: $36.75
Policy Year 3 (2021-2022)
- Kate’s age: 10
- Co-insurance: 90%
- Deductible: $1,000
- Annual premium: $526.62, up 19% over previous year
- Monthly premium: $43.89
Policy Year 4 (2022-2023)
- Kate’s age: 11
- Co-insurance: 90%
- Deductible: $1,000
- Annual premium: $567.76, up 8% over previous year
- Monthly premium: $47.31
About a month before the fifth annual policy renewal date, the insurer sent a declaration page for the coming year for the now-12-year-old Kate’s policy showing a 39% increase over the past year.
Policy Year 5 (2023-2024)
- Kate’s age: 12
- Co-insurance: 90%
- Deductible: $1,000
- Annual premium: $789.14, up 39% over previous year
- Monthly premium: $65.76
Kate’s owner felt adjustments were now in order, with the goal of cutting premium costs back to a more affordable level without taking on too much additional risk.
She called the insurance company and, with the help of a customer service representative who provided quotes reflecting various adjustments, ultimately decided to increase the deductible from $1,000 to $1,500 and to reduce the co-insurance from 90% to 80%. She kept unchanged the policy’s unlimited payout and coverage for exam fees, prescriptions, rehabilitative treatment, acupuncture and chiropractic care.
These changes reduced the annual premium by $412.47—a 52% reduction from $789.14 to $376.67.
Policy Year 5 (2023-2024)
- Kate’s age: 12
- Adjusted co-insurance: from 90% to 80%
- Adjusted deductible: from $1,000 to $1,500
- Adjusted annual premium: from $789.14 to $376.67
- Adjusted monthly premium: $31.39
Changing the annual deductible to $2,000 would have reduced the annual premium to $78.47, but the value of the coverage would have been too diminished to suit the owner.
With coinsurance reduced to 80%, a $2,000 deductible would mean $2,500 out-of-pocket to cover eligible expenses—an amount that would reset each policy year.
The owner felt the $1,500 deductible was an acceptable compromise. She knew she could afford to pay $377 a year for still-reasonably-good coverage, so that’s what she opted for.
This year’s policy renewal brought a 7.5% increase over the previous year’s adjusted rate, from $377 to $405. The owner renewed the policy without making any changes for year six.
Policy Year 6 (2024-2025)
- Kate’s age: 13
- Co-insurance: 80%
- Deductible: $1,500
- Annual premium: $404.85, up 7.5% over previous year
- Monthly premium: $33.74
Let Us Help!
On our blog, we’ve published our “Pet Insurance” series to help you choose the best insurance policy for you and your pet. The five-part series on choosing a policy includes—
- Part 1. Understanding Pet Insurance
- Part 2. Narrowing Your Choice of Pet Insurance Companies
- Part 3. Setting Your Pet Insurance Priorities and Preferences
- Part 4. Value Shopping Pet Insurance Policies
- Part 5. Still Wondering if Pet Insurance Is for You?
If you haven’t yet purchased an insurance policy for your pet, we encourage you to consider doing so, using our posts as a comprehensive guide toward choosing the best policy for you.
If you do have a pet insurance policy in force, we hope you’ll consider your options at renewal time each year to keep the coverage not only affordable but effective.