Pet

You may have heard about a relatively new product, pet insurance. Just like health insurance, it pays the vet bills, or a portion of them, when your dog or cat needs medical care. Should you buy it?

There are basically two types of insurance: catastrophic and incidental. Catastrophic insurance covers you for the things that you could not possibly pay for yourself. Your medical insurance covers you if someone in your family has a major accident or illness and you could not possibly afford the treatment. Car insurance covers you in case you cause thousands and thousands of dollars of damage to someone else. You cannot do without catastrophic insurance.

Incidental insurance, on the other hand, helps you manage your money. You pay a little each month in premiums, and then when you need it, the insurance company covers the expense. Vacation insurance and extended warranties fall into this category. So does pet insurance.

There is a better way to handle all of your incidental insurance: be self insured. Whenever you're tempted to buy any kind on non-catastrophic insurance, figure out what you would pay each month for it. Instead of paying that money to an insurance company, put it in a separate bank account. When an expense arises, you'll have the funds handy. Better yet, you'll be able to spend it however you choose, with no deductibles or limitations. Also, by putting money for all incidental insurance in the same account, you'll be able to spread out the risk. And if you're lucky and have no claims, you can keep the money!

The trouble with this plan is that you might be tempted not to put the money aside sometimes. To make this work, you need to find an automatic way to deposit the money. Does your employer automatically deposit your paycheck in your account? Most of them have the ability to make two direct deposits instead of one. Have them put a certain amount in your 'insurance account' and the remainder in your regular checking account. Or maybe your bank can automatically move a specified amount from your regular account to this new account every month. Or if you have the discipline, you could pay it every month like a bill.

Not everyone has the discipline to consistently fund a self insurance account. If you know this won't work for you and you wouldn't be able to afford whatever medical care your pet needs, then do a thorough before you buy a policy. Check out what is covered and what isn't, and what the deductible will be. You should be able to find low cost pet insurance, especially if you stick to coverage only for the less likely but more expensive expenses.

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