Most vets will recommend that you have pet insurance.
Most financial advisors will suggest that you should have pet insurance.
Pet insurance companies and comparison sites will tell you that you must buy pet insurance.
But do you really need pet insurance?
Personal Attitudes and Circumstances
They key word in the above question is you!
Whether you need pet insurance will depend upon your attitude to risk and your personal financial circumstances.
Insurance and Risk
Pet insurance is like any other insurance product. It is a risk transfer mechanism.
Many of us take out pet insurance because we are concerned about the potential risk of having to pay for large vet bills.
Pet insurance companies effectively agree to take on this risk for us in return for an annual or monthly premium.
Insurers cover vet fees for lots of pet owners. By “pooling” the risk they minimise the chance that what they have to pay out to meet the claims of their policyholders will be more than the premiums they charge.
Pet Insurance Company Costs and Profits
It is important to realise that pet insurance companies also have many costs to cover.
They will have administration costs as they have to collect premiums, deal with claims and provide customer service.
They will also have to sell lots of policies so that they can pool the risk of lots of people, so they usually have substantial marketing and sales costs.
Of course they also want to make a profit. Any business is a risk, and insurance businesses maybe particularly risky. So why do it without potentially lucrative rewards for doing so?
This all means that the total premiums received from policyholders is much more than the total claims paid out.
The Average Pet
We therefore know that the total premiums paid over a lifetime for the average pet must be substantially more than the vet fees incurred. So why does anyone buy pet insurance?
Because of course there is no way you can know that you have an average pet until their life is over. Before then there is always uncertainty about what lies ahead.
Your Personal Financial Circumstances
If you are a multi-millionaire you most definitely should not need pet insurance. You are well able to pay for your pet’s vet bills.
Whatever they are there is no risk that you will not be able to afford to pay them, or that they will cause you major financial problems.
There is no need therefore to pay an insurance company to cover this risk for you.
Your Attitude to Risk
If you are not a multi-millionaire the decision about whether you need pet insurance is more complicated.
But ultimately you need to decide, given your own financial circumstances, whether you are happy to carry the risk of high vet bills or not.
The real risk of course is not the high vet bills but the impact on your personal finances of having to pay those vet bills.
The more financial resources you have (savings, credit facilities, parents etc) the lower the risk that having to pay vet bills will cause major financial stress.
Your vet will recommend you have pet insurance because they want to make sure they can provide the best treatment for your pet.
Your financial advisor may recommend you have pet insurance to eliminate the risk of your finances being adversely affected by major vet bills.
Your pet insurance company will of course suggest that you cannot afford to be without insurance.
But ultimately it is a personal decision. Can you afford to take the risk? And if so do you want to take the risk? Your choice!
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