How Pet Insurance Works: Premium, Excess, Cover

Quick answer Pet insurance has a premium you pay regularly, an excess or deductible you pay on claims, and a reimbursement rate the insurer pays on the rest, up to the policy limits. With a 1,500 bill, a 150 excess and 80% reimbursement the insurer pays 1,080: (1,500 − 150) × 80%. Waiting periods and exclusions decide what is covered at all.

Pet insurance is easy to buy and hard to understand, because each policy mixes the same handful of ideas in a different way. Once you know what each word means, you can compare policies by arithmetic. This guide explains the parts of a policy in plain language, shows how a claim is calculated and lists the clauses that decide whether a bill is paid at all. It is a guide to the mechanics, not a recommendation to buy or not to buy; for the money question, see whether pet insurance is worth it.

The six parts of a policy

Part	What it means
Premium	The regular payment, usually monthly or yearly, that keeps the policy active
Excess (or deductible)	The amount you pay on a claim before the insurer pays
Reimbursement rate	The percentage of the covered bill the insurer pays after the excess
Limit	The maximum payment, per year, per condition or per claim
Waiting period	Time after buying when some claims are not covered
Exclusions	Things that are never covered, such as pre-existing conditions or routine care

Each of the six changes how much a policy is worth, and two policies with the same premium can be very different.

How a claim is calculated

For a simple policy with a per-claim excess:

insurer pays = (vet bill − excess) × reimbursement rate

Suppose your premium is 30 a month, the excess is 150 and the reimbursement rate is 80%.

Vet bill	Bill minus excess	Insurer pays (80%)	You pay
150	0	0	150
400	250	200	200
800	650	520	280
1,500	1,350	1,080	420
3,000	2,850	2,280	720

Notice that you still pay a share of every claim: the excess plus the 20% that is not reimbursed. For the 1,500 bill, you pay 150 + (20% of 1,350) = 420. Over a year you also pay the premiums, so what matters is the sum of both.

Excess: per claim, per condition or per year

How the excess is applied changes the maths a lot.

Per claim: you pay it every time you claim.
Per condition per year: you pay it once for each condition, so several visits for one problem cost one excess.
Per year: you pay it once a year in total.
Percentage co-payment: some policies charge a percentage rather than a fixed excess.

Ask your insurer which applies. A policy with a lower premium and a per-claim excess can cost more than a policy with a higher premium and a per-year excess if your pet needs frequent care.

Reimbursement rates

Rates are commonly offered at several levels, and the premium rises with the rate. A higher rate leaves you paying less on each claim but more every month. As an example, on a 3,000 bill with a 200 excess:

Reimbursement rate	Insurer pays	You pay
70%	1,960	1,040
80%	2,240	760
90%	2,520	480

The difference between 70% and 90% is 560 on this bill. Whether that justifies a higher premium depends on how many bills you expect and how large they are, which is what the Pet Insurance Break-Even Calculator helps you work out.

Limits

Limits cap what the insurer pays. They can be:

Per year: a maximum total in each policy year.
Per condition: a maximum for any one condition, sometimes for life.
Per claim or per item: a cap on specific treatments.
Lifetime: a total over the life of the policy.

A policy with a very low limit may not cover a large bill in full, even when everything else looks good. Read the limit for the kind of event you most want protection from.

Waiting periods

Many policies do not cover illness for a short time after you buy, often shorter for accidents than for illness. The aim is to stop people buying a policy when a pet is already unwell. Read the waiting period in the key facts document, and keep it in mind when you choose the date to start cover, particularly if your pet has just had a vet visit.

Exclusions and pre-existing conditions

Exclusions are the most common reason for a claim being refused. Typical examples:

Pre-existing conditions: problems that began before cover or during a waiting period.
Routine care: vaccines, parasite control and routine dental cleaning, unless added.
Cosmetic or elective procedures.
Breeding and pregnancy costs.
Conditions linked to a pre-existing problem.

Always read the exclusions page, and ask the insurer to explain any term you do not understand. If your pet already has a health problem, ask how it will be treated by the policy before you buy.

Lifetime, annual and accident-only policies

Type	What it usually means
Accident only	Covers injuries from accidents, not illness; usually cheaper
Time-limited	Covers a condition for a fixed period or until a limit is reached
Maximum benefit per condition	Covers a condition up to a stated amount
Annual or lifetime	Resets each year, or continues for the pet’s life if renewed

Names and details differ between insurers and countries, so use these as categories to ask about, not as definitions.

A worked example from claim to net result

An owner pays 30 a month (360 a year) with a 150 excess and 80% reimbursement. In the year, the pet has a 1,500 bill.

Insurer pays (1,500 − 150) × 80% = 1,080.
Owner pays 420 of the bill and 360 in premiums.
Net cost to the owner for the year: 780. Without insurance, the owner would have paid 1,500.
In a year without any claim, the owner pays only the 360 premium.

The break-even bill for this policy is premium ÷ rate + excess = 360 ÷ 0.8 + 150 = 600. Above it, the policy has paid back more than it cost; below it, the owner paid more than they received.

Questions to ask before you buy

Question	Why it matters
How is the excess applied?	Changes the cost of repeat visits
What is the annual limit, and is it per condition?	Caps your protection
What are the waiting periods?	Affects when cover starts
What is excluded, and how is pre-existing defined?	Decides which claims are paid
How will the premium change as my pet ages?	Avoids price shocks
How are claims paid?	Direct to the vet or reimbursed to you
Is routine care available as an add-on?	Compare with self-funding

Common misunderstandings

“Insurance pays everything.” It pays a share, after the excess and within the limits.
“A cheaper premium is better value.” Check excess, rate and limits.
“I can buy it when the pet is ill.” Conditions that exist before cover are typically excluded.
“It covers vaccines.” Usually not.
“Once I claim, the premium never changes.” Premiums can change with age and claims.

A year in the life of a policy

Following one policy through twelve months shows how the parts interact. The policy has a premium of 35 a month (420 a year), a 100 excess per condition per year and 80% reimbursement. The numbers are illustrations.

Month	Event	Bill	Insurer pays	Owner pays
2	Ear infection, one visit and medicine	180	(180 − 100) × 80% = 64	116
4	Follow-up for the same ear problem	90	72 (excess already used for this condition)	18
7	A cut paw, stitches	320	(320 − 100) × 80% = 176	144
11	Routine vaccines	70	0 (not covered)	70
Total bills		660	312	348

Add the 420 of premiums, and the owner has paid 768 for the year and received 312 in payments, a net cost of 456, compared with paying all 660 without insurance. In this year the policy cost more than it paid, which is typical of a year with modest bills, and it would have paid far more with a single large bill. The owner is paying for protection, not just payouts.

Claim process: what usually happens

Policies differ, but a typical claim goes like this:

You or your vet fill in a claim form, with the invoice and clinical notes.
The insurer checks the claim against the policy: condition, dates, waiting periods and limits.
The insurer pays the vet directly or reimburses you, usually within a stated time.
Ongoing conditions are tracked over the policy year.

To make claims easier, keep invoices, tell the insurer early about a new condition and ask your vet whether they can claim directly. If a claim is refused, ask for the reason in writing, and ask about the complaints process.

Renewal and changes

At renewal, premiums can change. Common reasons are the pet’s age, claims history, vet costs and the insurer’s own pricing. Check the new terms before accepting, compare with other quotes and note whether a condition that started during the policy will continue to be covered. If you switch insurer, a condition that began under the old policy may be treated as pre-existing by the new one, so ask first.

A simple claim, step by step

Suppose a policy has an annual excess of 150, 80% reimbursement and a limit of 5,000. A treatment costs 1,150. The insurer subtracts the excess (1,150 − 150 = 1,000), pays 80% of that (800), and you pay the rest: 150 + 200 = 350. If the bill were 8,000, the reimbursement would be capped by the limit. Check your own policy documents for how excess, reimbursement and limits apply, because wording differs by insurer and country.

Read before you buy

Which conditions are excluded, and how pre-existing conditions are defined.
Waiting periods before cover starts.
Whether premiums rise with age.
Whether the limit is per condition, per year or for life.
How claims are paid: direct to the vet or reimbursed to you.

Use our Pet Insurance Break-Even Calculator alongside is pet insurance worth it.

Quick summary

A policy has a premium, an excess, a reimbursement rate, limits, waiting periods and exclusions.
Insurer pays = (bill − excess) × reimbursement rate, within the limits.
With a 150 excess and 80% rate, a 1,500 bill is paid 1,080 by the insurer; a 3,000 bill is paid 2,280.
Waiting periods and pre-existing conditions decide what is covered at all.
Compare policies on all six parts, not the premium alone.
Use the Pet Insurance Break-Even Calculator with your quote.

Frequently asked questions

How does pet insurance work?

You pay a premium. When you claim, you pay the excess (deductible) and the insurer pays a percentage of the rest, up to any limits, for conditions the policy covers.

What is an excess or deductible?

The amount you pay on a claim before the insurer pays. It can apply per claim, per condition or per year, depending on the policy.

What is the reimbursement rate?

The share of the covered bill the insurer pays after the excess, such as 70%, 80% or 90%.

What is a waiting period?

A period after you buy the policy when illness is not covered. Read the wording, because waiting periods differ.

Are pre-existing conditions covered?

Typically they are excluded, so a condition that started before cover or during a waiting period may not be covered.

Does insurance cover routine care?

Usually not. Many policies focus on illness and accidents, and routine care may be an add-on.

What is an annual limit?

The most the insurer will pay in a policy year, or for a condition. Limits differ widely between policies.

Sources

Pure arithmetic on your own inputs: insurer pays = (bill − excess) × reimbursement rate
AAHA (2019) Canine Life Stage Guidelines. Journal of the American Animal Hospital Association 55:267-290

Reviewed by the CalcuPaw Veterinary Review Team

Last reviewed 18 Oct 2026 · Meet the review team · This guide is general information, not veterinary advice.