Pet owners are at serious risk of underestimating the time and expense that having a sick or injured pet can have on their lives as fees for vets are expected to continue to rise by 20 per cent over the next three years.

It has been estimated that 40 per cent of the cost of owning a dog goes towards unexpected vet's visits and that only 12 per cent of the UK's 13 million dog owners insure their pets.

According to financial research company Defaqto, pet insurance can be a minefield for owners and its complexity is deterring consumers from taking out cover.

It says, that because different insurers pay claims per year or per condition and place some limits on particular claims, consumers are confused as to which policies are best to take out.

A cat typically lives for 14 to 15 years and its care can cost as much as £9,500 in its lifetime. A dog lives for around 13 years and costs between £500 to £1,000 a year on average.

But, owners who are already paying a small fortune to look after their cat may be reluctant to purchase insurance, especially when annual premiums can be as high as £200 for those living in London.

And while pet insurance can save you a fortune should your cat or dog become seriously ill, it can also be massively restrictive.

Pet insurance should cover vets fees, treatment for long-term conditions, death by illness benefits, death by accident benefits, rewards and expenses for stolen or lost pets, and dental treatment.

But many policies are not as good as they can be. For example, some will allow you to claim for the same condition repeatedly, but there will be a limit on the total amount you can claim for each year.

Others will only allow you to claim once for each condition. Make sure the limit per claim is more than £5,000.

Buying pet insurance is much the same as buying home or motor insurance. You need to check what the excess is - that is the amount you will have to fork out for each claim.

Remember that the cheapest may not necessarily be the best since it may not cover claims likely to arise for your pet's particular circumstances. The study warns that choosing the cheapest insurance may require the buyer to pay as much as 35 per cent of expensive treatments.

The best policy is one that covers your pet for its lifetime. Contracts renewed annually can exclude any condition experienced the year before and could also exclude your pet when it gets older. Also, some firms will not begin cover until the animal is six or eight weeks old.

In addition to ensuring that vets' bills don't send an owner into financial difficulty, pet insurance can provide other useful cover. For example, if a motorist crashes his car into a wall to avoid running over your cat, you could be covered for the expensive repair bill for the car - and the wall.

Also, if your dog attacks the postman and you find yourself in court, many policies offer useful legal advice and cover for legal fees. Legal liability for damage to anyone or their property caused by your pet is actually required by law if your dog is covered by the Dangerous Dogs Act.

Some policies offer to pay for kennels or boarding if you have to go into hospital, which could be a good idea for an elderly person living on their own. A few top-of-the-range schemes will also pay for holiday cancellation if your pet is sick or injured.

Most will pay for costs for advertising and a reward if your animal is lost, to varying degrees. Some will pay the purchase price of your pet if it dies or is stolen.

Pet insurance is to cover you for the unexpected. That means vaccinations, boosters, wormers, nail clipping, spraying and neutering will not be covered.

There is a wide range of pet insurance providers and polices will differ widely. Decide what level of cover you need and what you can afford due to your and your pets circumstances. The excess on your policy can range from £25 to £65.

Keep in mind dogs cost more than cats to insure, and you sometimes pay extra for pedigree pets and bigger dogs. More delicate breeds may cost more to insure with some companies. Premiums may vary according to where you live because vets' bills tend to be higher in cities especially London.

Some insurers will have a maximum figure they are prepared to pay out in a year, others will pay out a maximum per claim for illness or accident. Think about your cover carefully, it could make a big difference.