How does pet insurance work?

Getting pet insurance can be a great way to ensure you'll always be able to give your animal companion the care they deserve without breaking your budget.

But pet insurance doesn't always work the same way your health insurance does. Here are a few things to consider about pet insurance coverage before picking the policy that's right for you (and your animal).

Pet insurance generally covers new accidents or illnesses that appear with your pet. If you're shopping for pet insurance, CNBC Select has done some of the comparison shopping for you. Some of our top picks include Spot Pet Insurance for its wellness availability, coverage of vet exam fees, and no upper age limit. We picked Healthy Paws for its strong accident and illness coverage featuring unlimited annual and per-accident coverage.

When your pet needs treatment, the right pet insurance policy can be a huge help. But pet insurance doesn't cover every instance of your pet needing care. Here are several circumstances when pet insurance won't be able to come to the rescue.

It doesn't cover your pet immediately

Pet insurance will cover your pet after a set waiting period. A two-week waiting period after purchasing a policy is fairly standard for policies that cover illnesses, while accident coverage can sometimes have a shorter waiting period of a day or two.

Anything that happens to your pet before your policy's waiting period will not be covered by your policy.

For this reason, getting your pet insured while they're young and healthy can not only save you money in premiums, but it can also help make sure future illnesses and accidents are covered by the policy.

It doesn't generally cover pre-existing conditions

It's important to note that no pet insurance companies cover pre-existing conditions, including injuries or illnesses that your pet had before enrolling them in coverage and finishing the waiting period.

There are some distinctions, however. Some — but certainly not all — pet insurance companies will treat curable pre-existing conditions differently from conditions that are incurable. Embrace, for example, can reinstate coverage for conditions after a period of 12 months from the date of the last episode. However, the company does state on its website that it does this "at our discretion," so it's never a guarantee.

As an example, Embrace considers several conditions as curable pre-existing conditions in pets:

• Respiratory infections
• Bladder infections
• Gastrointestinal disorders

Incurable pre-existing conditions generally include things like:

• Allergies
• Cancer
• Diabetes
• Skin lumps or lipomas
• Thyroid issues
• Other chronic conditions

If your pet has an incurable pre-existing condition, your pet insurance likely won't cover any treatments related to these conditions. Saving a "pet care" emergency fund in a high-yield savings account dedicated could help you cover the expenses pet insurance can't. Some of our top picks for high-yield savings accounts include LendingClub's High-Yield Savings for its strong APY and no minimum balance required, and UFB Secure Savings for not having a monthly maintenance fee and providing a free ATM card.

The type of pet insurance you buy determines what is covered

There are three main types of pet insurance coverage you'll see while shopping, including:

• Accident-only coverage: This coverage usually covers unexpected injuries to your pet, such as cuts and lacerations, ingesting a foreign object, or even poisoning.
• Accident and illness coverage: This coverage can help pay for accidents plus new illnesses your pet experiences.
• Wellness coverage: This coverage can help pay for more routine treatments, such as an annual wellness check, vaccinations, and sometimes even prescription medication or diets.

However, the exact things that any pet insurance policy will cover will vary based on the specific insurance company and policy. Make sure to read your pet insurance policy thoroughly or look at a sample policy on the brand's website before buying to get an idea of what's covered and what's not.

Pet insurance doesn't often cover elective procedures or pregnancy

Pet insurance doesn't often cover elective procedures you choose to have your pet undergo, like declawing for cats or tail docking or ear cropping for dogs.

Policies also generally exclude costs related to pregnancy or birth. Some pet insurance companies will cover spaying or neutering under wellness policies, however.

In general, pet insurance works by reimbursing you for a percentage of your treatment costs minus any deductible you're responsible for.

Here's what you need to know about how to use pet insurance to get your pet the care they need.

1. Use any vet you'd like

Unlike human health insurance, you don't need to worry about which vets are and aren't in a network of providers. Most pet insurance companies allow you to use any licensed veterinarian in your area.

2. Pay your bill in full

Most pet insurance companies require pet owners to pay for the vet bills in full on their own. That can mean that you'll need to have the cash or credit on hand to be able to pay for a vet bill up front, even if it's a large one. Make sure to save a copy of your receipt and bill to get reimbursed.

Some pet insurance companies can directly pay the vet to simplify the process. CarePlus by Chewy, for example, offers direct-to-vet payments with insurance through partner company Trupanion.

3. Submit your bill to your pet insurance company

Many pet insurance companies have an app or website where you can upload your receipts and veterinary bills after they're paid. You'll file a claim on the pet insurance company's website. Many insurance companies approve claims within a week, though some can take longer.

4. Get reimbursed up to a percent of your expenses, minus your deductible

When you receive your reimbursement from your pet insurance company, you might notice that it's less than what you paid. There are two reasons for that: the policy's reimbursement rate and your policy's deductible. Both are chosen when you purchase the policy.

Pet insurance companies can reimburse you for any qualifying expenses that exceed your deductible. A deductible is a set dollar amount you pay before your insurance policy contributes to cover its share of the costs. That amount can be anywhere between $100 to $1,000. Generally, the higher the deductible, the lower the premium, or the periodic cost you pay for coverage. Deductibles can come in one of two forms:

• An annual deductible. A policy with this type of deductible would reset each year, similar to a health insurance policy.
• A per-incident deductible. A deductible is required each time you file a claim.

After you meet your policy's deductible, you receive reimbursement from pet insurance companies as a percentage of the total balance. Generally, this reimbursement will be between 70% and 90% of the cost. Again, this reimbursement rate is chosen when you sign up for the policy.

As an example, if a pet owner with an 80% reimbursement rate, a $250 deductible, and a $5,000 annual limit faces a $1,000 vet bill for their dog, the pet insurance policy would pay out 80% of the remaining $750 of the expense, totaling a $600 reimbursement.

The cost of pet insurance depends on your policy's coverage, deductible and reimbursement limits, and annual maximum. It also varies based on your pet's age, breed, weight, and the type of pet you're insuring — dogs (for example) are generally cheaper to insure than cats.

According to the North American Pet Health Insurance Association (NAPHIA), the average pet insurance cost for dogs in 2022 was $53.34 per month for accident and illness policies, and $16.70 per month for accident-only policies. For cats, the average accident and illness policy cost $32.25 per month, and the average accident-only policy cost $10.18 per month.

Pet insurance works by reimbursing you a portion of the treatment costs for any new, unexpected illnesses that arise in your pet. It doesn't cover any pre-existing conditions your pet had before signing up for the policy, but your pet can generally see any vet you'd normally visit if something unexpected happens.

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