A Pet Insurance Review - The Essential Background Information You Need
What do you expect from a pet insurance review? Do you expect that we will compare quotes for pet insurance just like so many other pet health insurance reviews you may have seen? Don't worry, we will, but not quite yet.
Your search for the best pet health insurance has just begun so we should start at the place where all things start… at the beginning. What do you want from your pet insurance? How do you know if you will get it? It all comes down to knowing how pet insurance works and what questions to ask. Let's get behind the scenes in our pet insurance review.
In this part of our pet insurance review we'll learn a little about the insurance industry. Not all of it mind you, but enough to better understand the forces at work and how they may work for you… or against you.
We're sure it will not come as a shock to you to learn that Insurance companies need to make a profit to stay in business. Just like every other business, no profit… no survival. So making a profit is a good thing since you wouldn't want your insurance company to disappear now would you? That is the first thing we will cover in our pet insurance review.
How do insurance companies make a profit? They actually have two primary means of keeping their accounts out of the red and keeping their shareholders happy. Insurance companies make underwriting profits and investment profits. Yup… they have two ways of making money. How cool is that?
To make an underwriting profit, Insurance companies must have more premium income than expenses. Those expenses include the cost of operating the business e.g. salaries, rent, technology, marketing, administration costs, etc. and the amount that is paid out in claims. So if they receive $10 in insurance premium income and they pay out $9.98 in all costs including claims, they have made a tidy 2 cent underwriting profit.
Do they have underwriting losses? They sure do! Major events like big hurricanes or other major disasters can cause a large number of claims. As a result they will lose money, but only for the short term. Over the long term insurance companies have to make a profit… or go out of business.
And investment profits? Well you can safely guess that we're referring to all income earned on good, solid investments including real estate, money markets, stocks, bonds etc. What else would they do with all of the money they collect in premiums? Let's face it, they are not buying a lot of heavy machinery or raw materials like manufacturers do, or inventory like you would expect a retailer to do. They have the cost of administration, the insurance claims they have to pay out and the paper to produce policies. That's it!
Can they have investment losses? Of course, but most Insurance companies are conservative in their investments. They invest carefully to minimize their losses and are also regulated to ensure there will be adequate funds available to pay for any claims you may have.
Okay… we all agree that Insurance companies should make a profit to stay in business. But how does this affect you and your pet insurance review? We already know to make an underwriting profit, the Insurance Company must take in more money in premiums than it pays out in claims and administrative costs. Therefore many people are going to pay more in premiums than they collect in claims paid to them… while other people will collect more in claims than they pay in premiums.
So why bother at all then? Simply stated… you may not use all of the insurance you pay for, but if the worst should happen and you are faced with a very expensive veterinarian treatment to save your pet's life, you will be happy that you have pet insurance… that is if your pet insurance has not excluded the condition that is being treated and not limited the amount it will pay in claims.
How do Insurance companies control their costs? Ahh… that is a great question and this is where you really need to pay attention to understand what low cost pet insurance is and why it is not always the cheapest.
The big question is… and we've asked it before, because it's very important… what do you want your Pet Insurance to do for you?
- Do you want it to cover all of your vet costs?
- Do you want it to cover all or most of your Vet costs related to Illness and Accidents?
- Do you want it to cover just those Vet costs related to Illness and Accidents that are very expensive and cost more than you can afford?
As you can see, these are all very different needs. And we're sure you'll not be surprised to know that Pet Insurance premiums vary greatly depending on what you want.
Not all pet insurance policies are the same. There are a number of variables. And in managing these variables, Insurance companies manage their costs. The problem is… it's not always obvious to you until it's too late.
So in the next section of our pet Insurance review, there are a few things to consider since this is where pet insurance policies, and the companies who administer them, can be very different from each other. And those differences can cost you money if you don't know what you are looking for.
Continue to Part 4 - Pet Health Insurance Reviews - Ten Important Things To Look For
Return to Part 2 - The Best Pet Health Insurance for You... What Are You Looking For?
Return HOME to Pet Lovers from our pet insurance review.