How are pet insurance premiums calculated

In pet insurance, a premium refers to the amount you pay, typically via monthly or annual payments, to keep your policy active and maintain cover. This payment covers the risks associated with your insured pet. Premiums are calculated on a range of factors such as breed and age and will often increase over time to keep up with the costs of caring for an older pet.

While pet insurance premiums will generally rise each year, costs may increase more sharply when the pet reaches ‘senior’ status, about 7 or 8 years old. This is primarily because the statistical risk of illness increases, and insurers adjust rates to cover the higher probability of expensive medical treatment for your older pet.

Pet insurance premiums are calculated after an assessment of your pet’s risk profile, alongside the level of cover you choose and the expected cost of any possible veterinary care. The price will reflect how likely your pet is to need treatment, and how expensive that could be over time. Generally, premiums are based on factors that calculate a ‘risk profile’ including:

• the type of pet you have
• your pet’s age
• the breed of your pet (for dogs)
• your pet’s gender
• whether your pet is desexed
• your location and where you live
• the annual benefit limit you choose
• the benefit percentage you choose
• the policy excess that applies.

Pet insurance premiums are affected by your pet’s individual risk factors as well as your policy settings. They are calculated by assessing your pet’s risk profile and combining that with your chosen cover level and expected veterinary costs. Age and breed can significantly influence the likelihood of a claim and could be the determining reason why your premium is priced the way it is. This is because different breeds have varying healthcare needs based on genetic predispositions to certain conditions.

Human health insurance is community-rated (where everybody pays the same base premium for the same policy), while pet insurance is risk-rated, meaning two pets with similar policies can have different premiums.

Pet insurance premiums will often increase in cost annually as the insurer will reassess your pet’s risk profile. They will have to factor in ageing, a higher likelihood of illness, rising veterinary costs and updated claims data. Each year as your pet ages, the risk of health issues increases, making claims more likely.

Your choice of cover can significantly affect the premium you pay for pet insurance, as policies with broader cover and higher benefit limits will cost more than basic plans. The cost of your pet insurance premium will also depend on your choice of insurer and the policy you choose. For example, more basic insurance plans will be cheaper than policies with higher benefit percentages, such as comprehensive plans. Premiums can also vary between insurers, even for similar levels of cover.

Here are the main types of pet insurance policies available to pet owners:

• Accident and illness cover plans include protection for both accidents and illnesses and can reimburse you for a portion of the treatment costs. Illnesses typically covered under this type of policy include cancer, skin conditions, tick paralysis and cruciate ligament damage. This type of cover will set the coverage scope, whereas higher-tiered policies will enhance the percentage of costs reimbursed.
• Accident-only policies will only cover specified accidental injuries and not pre-existing conditions, elective procedures or routine care.
• Comprehensive cover policies will have higher benefit percentages, which means they can cover a larger portion of your bills for common pet injuries and illnesses. These are generally the most expensive policies available, and they also often come with the option to add a routine care package for additional benefits. Typically, comprehensive policies will increase how much you can claim back in reimbursements, rather than expanding the types of conditions covered by the plan.
• Optional cover or routine care are add-ons that allow you to attach one or more non-mandatory covers to your policy to pay for a portion of expenses. These extras will often relate to a specified routine care procedure such as a check-up, vaccination, microchipping, teeth cleaning (or other dental care), behavioural therapy and even some elective treatments. These optional covers will increase the premium you pay for your pet insurance.

Pet insurance premiums can go up after you make a claim as insurers may reassess your pet’s risk (particularly if the claim is high value or an ongoing illness). Multiple claims throughout the year may also reflect your pet’s increased risk, which can contribute to higher premiums. Premiums can also increase due to ageing and rising vet costs (regardless of whether you make a claim), with previous claims also used by insurers to gauge future risk.

Your excess, or deductable, is the amount you contribute towards a pet insurance claim and can impact the price of your pet insurance. Insurers often allow you to choose your excess, and choosing a policy with a higher excess is a method of lowering your monthly or annual premium.

Suppose you incur a vet bill of $1,000, your pet insurance policy excess is $200, and the benefit percentage is 80%. If your insurer deducts the excess before applying the benefit percentage, then:

• Subtract your excess from the vet bill: $1,000 – $200 = $800.
• Apply the benefit percentage (80%) to the remaining $800, which is $640.
• Your insurance will cover $640 of the vet bill, and you’ll pay the remaining $360 (which includes the $200 excess).

Say you get a vet bill of $1,000 when your pet insurance policy excess is $200 and the benefit percentage is 80%. If your insurer applies your benefit percentage first, then:

• Your insurer will apply the 80% benefit percentage to the vet bill: $1,000 x 80% = $800.
• Subtract the policy excess from this amount: $800 – $200 = $600.
• Your insurance will cover $600 of the vet bill, and you will pay the rest, leaving you to pay $400 (including the $200 excess).

If you choose a policy with no excess and your policy has a benefit percentage of 100%, the insurer will pay the full cost of the vet bill (subject to conditions and exclusions; sub-limits may also apply). Keep in mind that the benefit percentage (and your premiums) increases as the policy excess decreases.

When taking your pet to the vet, you might have to pay the whole bill upfront and then lodge a claim with your pet insurance, though some vets can charge your insurance company directly, leaving you with just the balance of the bill to pay as well as any excess payments.