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I used to think pet insurance was a ripoff. Here’s why I changed my mind.

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There are few things I love more than my dog Spencer. He is a goofy, adorable 25-pound rescue beagle from West Virginia. He is always excited to see me. And he rocks a lobster costume like no other canine.

Spencer does not enjoy his lobster costume nearly as much as I do. (Sarah Kliff/Vox)

Spencer is also a horrific sinkhole for money. His medical bills this year are higher than mine. I've spent at least $1,677 on veterinary care for Spencer since I adopted him last August. There was the $400 bill in July when he had an unfortunate run-in with a bone, and another $355 when I thought he had a parasite living in his stomach (turns out he is just a very hungry dog). And those are only a few of his run-ins with the veterinary health-care system.

Those bills got me thinking about pet insurance. Fewer than 6 percent of dog owners purchase coverage; I immediately dismissed the idea when I got Spencer last year, assuming it was almost certainly a scam. The market is a mess to understand, with no standardized package of benefits and little information about how much of a premium actually goes toward medical care.

But with Spencer's veterinary bills (and my professional curiosity) mounting, I turned to the experts. I consulted health economists, veterinarians, and pet insurance plans themselves to better understand what exactly pet insurance covers — and whether it's a worthwhile purchase.

What I learned was that I was thinking about pet insurance all wrong. I was primarily asking myself: How healthy is Spencer? Will I get back whatever I spend on premiums in the claims that I file?

That's a question that's impossible to answer; I have no clue what absurd things Spencer will eat — or what other injuries or illnesses could happen to him.

Instead, the important question I needed to answer before purchasing pet insurance wasn't about Spencer. It was about me. And it was a difficult question, too: How much would I be willing to spend to save my dog's life?

You're probably asking the wrong question about pet insurance

I know I was, at least, when I started shopping. I was trying to do the math on whether I would get back whatever premiums I paid into Spencer's coverage in claims paid out.

And it's not just me: Consumer Reports' ranking of pet insurance plans is often the top Google result for those researching coverage, and it takes a similar approach. Its 2011 article declares "Pet insurance: rarely worth the price." The researchers get to that conclusion by looking at the case of a 10-year-old beagle named Roxy. They show that if Roxy had coverage, her owners would have paid more on premiums than they got back on medical claims.

(Consumer Reports)

This, unfortunately, is the wrong way to think about insurance — pet or otherwise. Consider, for a moment, the homeowners or renters insurance policy that you probably carry right now. I have one that I pay about $18 each month for, to cover my one-bedroom apartment in Washington.

I've purchased renters insurance for about five years now, and have never filed a claim. I've given the insurance plan about $1,000 and gotten zero dollars in return. Does this mean my renters policy isn't, in the words of Consumer Reports, "worth it"? Absolutely not: I still believe it's been a good idea to buy financial protection against catastrophe.

As David Cutler, a Harvard health economist, put it to me, "My goal is to always put in more than I take out from insurance. I’d be blissfully happy if I never used my homeowners insurance." Filing no claims means that life is proceeding apace, with no unexpected disasters.

The point of insurance isn't to earn back your premiums. That's a fool's errand.

The point of buying insurance is not to make a good investment and earn money back. That's a fool's errand: Insurance plans will always take in more premiums than they pay out in claims, simply because they have employees to pay and profits to keep and offices to pay leases on.

But money spent on premiums is not a waste. I pay $18 each month for my renters insurance because if a flood ruined my apartment or a thief stole my valuables, the bills could bankrupt me. So I buy coverage, month after month, because I want the financial protection of having someone else on the hook for my bills if a catastrophe did occur.

It makes sense to think of pet insurance the same way: as a fee paid for financial security.

There are two questions you should ask

Jennifer Fitzgerald is the co-founder of PolicyGenius, a website that advises consumers on which types of insurance to purchase — pet policies included.

Her company does make a commission whenever someone buys a policy through the site. She has an incentive to encourage shoppers to buy. Still, she doesn't necessarily think pet insurance is for every pet owner. She walked me through the two questions that she thought any shopper should ask herself.

Spencer helps browse health insurance options. Just kidding, he's a dog, he can't read. (Sarah Kliff/Vox)

The first question is the easier one: How much can I afford to spend on my pet? If I got a really expensive bill, maybe something upward of $5,000, would I be able to pay it off myself? If the answer is yes, she says, you might not need pet insurance: You could take a gamble and essentially act as your own insurance company. But if the answer is no, then there's a follow-up question:

How much am I willing to spend to save my pet's life? Don't think about the constraints of your budget for a moment — think about whether you'd think it was worth it to pay $5,000, $10,000, maybe even $20,000 to save your pet's life.

This is a hard question, and it's one that's a bit unique to pet insurance. Most things we insure have a price; when I bought renters insurance, for example, I had to estimate the price of the things in my house. For health care, there is no price limit: We're generally willing to spend as much as is necessary to save a human life.

How much could you spend to save your pet's life? And how much would you be willing to?

With pets, there is no fixed value. I didn't pay any money for Spencer when I got him from a rescue group in Washington — but he's obviously worth quite a lot to me now. But would I pay as much to save his life as I would to save my own? Probably not.

Fitzgerald says the right consumer for pet insurance is someone who has low ability to pay but high willingness — a dog owner who would, for example, find herself bereft at not being able to afford $20,000 in veterinary bills but who doesn't have $20,000 in savings to spend on the issue.

"It's willingness to pay versus ability to pay," Fitzgerald says. "There are some people who, if costs got too great, it wouldn't be a monumental decision to not pay. And pet insurance probably isn't for them. And then there are some people who can self-insure, who look at a $5,000 bill and think, 'I could cover that, and I would cover that.'"

Or, as Cutler, the Harvard economist, put it, "Spend money on insurance when not doing so leaves you open to the possibility of becoming very poor in situations of need. Only people who are determined to do a lot for their pet should buy pet insurance."

Does pet insurance offer any value? And which one is best?

"You think shopping for health insurance is hard? Try doing it when you literally do not understand the concept of numbers." (Shutterstock)

For those who find themselves with a willingness to pay but low ability, there's still one big question: how to choose a plan. And there are two reasons this is particularly difficult when it comes to pet insurance.

One reason I keep paying my renters insurance policy is because it's cheap. I don't have to rework my budget around a monthly $18 premium. But what if my renters insurance policy cost $100? What if it cost $200, or even $500? There's some point where you question the value of an insurance policy and whether it's doing your bank account more financial harm than good.

The hardest part of buying pet insurance was deciding which plan to buy

And to stick with the renters insurance analogy for a moment: I generally understand what my renters insurance covers. But with pet insurance, that can be harder to figure out. All plans currently exclude existing conditions. They also charge older dogs higher premiums, to reflect the fact that they will likely face higher costs.

Plans also don't typically pay for routine care, like vaccines or preventive medications.

In terms of researching which health plan to choose, I found Fitzgerald's site, PolicyGenius, the most helpful place to do this. It works in a similar way to Healthcare.gov, collecting information about the potential enrollee (in this case, canine or feline) and then showing the prices of different options.

I liked PolicyGenius first and foremost because it put all the carriers in one place, and second because it used helpful, guiding questions to help me think about what type of coverage I would want. There was this one, which helped me think through how much of my costs a pet insurance plan would cover — and whether I'd want to increase my premiums, for example, to get a plan to cover 80 percent of the bill instead of 70 percent.

(PolicyGenius)

Buying pet insurance means making decisions about how much you want to spend on premiums — and what type of deductible you're willing to accept. There is usually a trade-off here: Plans with higher premiums have lower deductibles, and vice versa.

You'll have to decide how much you're willing to pay to protect yourself against big bills in the future. And this is a maddeningly difficult task with no one right answer. But usually, you'll need to think about what type of monthly premium fits into your budget — and whether you feel that's worth it for the financial protection it provides.

I think an $18 monthly premium to cover pretty much everything in my apartment is a pretty good deal. To insure Spencer, I'd need to spend about $30 to $50 per month to cover 90 percent of the bills for a dog of indeterminate value. And after thinking about it for a few weeks, I decided it was worth it.

Here's why I decided to buy pet insurance

I know that I probably won't get my money back on Spencer's policy. Pet insurers spend a smaller share of premiums to medical care than health insurers. The one publicly traded pet insurer, Trupanion, says it spends 70 percent of premiums to claims. Insurance filings show other companies spend less. That's frustrating! But that's the market that exists, rather than the market of my dreams.

The face of a newly-insured doofus. (Sarah Kliff/Vox)

I know it's entirely possible that at the end of the year, I'll have racked up another $500 in premiums and not submitted a single claim.

But I also know that I won't see that as $500 wasted: Whether it's rational or not, I would spend a lot of money to save Spencer's life. If I got a very large bill, I would likely pay it. I would pay bills big enough to make it difficult for me to put a down payment on a house in the medium-term future or interfere with my ability to contribute to a retirement savings plan.

Veterinary bills rarely hit all at once, like a $5,000 bill to fight cancer or perform emergency surgery. Instead, they show up in a slow trickle: a series of $400 visits, over the course of a few weeks, that inch upward into a pile that costs thousands. I worry about a situation where I head down the road of these visits and the bills pile up, quickly — and I have to worry about whether I want to pay the next $400 bill, or the one after that.

A stack of $400 bills could cause me significant financial ruin. Monthly premiums of $40 to $50 — the amount of most quotes I've gotten for Spencer so far — won't.

For better or worse, I am very emotionally invested in Spencer. I have trouble coming up with a figure in my head that would be too much to spend. He is a constant companion, a regular joy in my day, a dog who had a rough life before he found his way to my house and one that I want to do my best to take care of.

It's possible my priorities will change down the line — if I have kids, for example, Spencer might become less of a financial priority. As he gets older, I may be able to better accept what it would be like to lose him. But for now, he's a doofus who likes to eat rocks and dryer sheets, among other life-endangering snacks. So I'm buying him a pet insurance policy — and keeping my fingers crossed that I'll barely need to use it.

Now I'm just using this article as an excuse to post photos of my dog. (Sarah Kliff/Vox)

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