Aflac

[detlef]

OK, so some guys came by to see me about letting them get in front of my staff and sell supplemental insurance to them. It all sounded cheap enough and certainly something nice to have around if you got hurt. However, when I walked away, I was reminded about my fundamental issue with insurance. That being, it can't be that good of a deal if someone is making money selling it.

 

Now, I understand the rub with basic health insurance because they can negotiate better prices with doctors than you can, so they could be profitable based solely on that even if they didn't build the odds in their favor. But Aflac is all about cash payout that you can spend on whatever you want. There's no deal they can swing other than stacking the odds against the customer. Correct?

 

Which means, their entire business model is based on people needing them less than they've set the odds up to cost.

 

In other words, each individual would simply be better off putting the $25-$100 per month they'd be paying Aflac into a rainy day fund and taking the chance that they actually end up needing it for an accident or what have you that would trigger a payout from Aflac. Something that isn't actually the case with basic medical insurance when you take into account the fact that you get raped on medical costs if you're not in a plan.

 

Am I missing something here?

[matt770]

OK, so some guys came by to see me about letting them get in front of my staff and sell supplemental insurance to them. It all sounded cheap enough and certainly something nice to have around if you got hurt. However, when I walked away, I was reminded about my fundamental issue with insurance. That being, it can't be that good of a deal if someone is making money selling it.

 

Now, I understand the rub with basic health insurance because they can negotiate better prices with doctors than you can, so they could be profitable based solely on that even if they didn't build the odds in their favor. But Aflac is all about cash payout that you can spend on whatever you want. There's no deal they can swing other than stacking the odds against the customer. Correct?

 

Which means, their entire business model is based on people needing them less than they've set the odds up to cost.

 

In other words, each individual would simply be better off putting the $25-$100 per month they'd be paying Aflac into a rainy day fund and taking the chance that they actually end up needing it for an accident or what have you that would trigger a payout from Aflac. Something that isn't actually the case with basic medical insurance when you take into account the fact that you get raped on medical costs if you're not in a plan.

 

Am I missing something here?

 

Their business model is based on only a small percentage of the insured pool making claims in a given period. For the unlucky 1-2% of people who need to make a claim, it's a great deal. The rest are paying for peace of mind.

 

$25-$100 per month is not going to cover your family's expenses if you are out of work for a year or more from a catastrophic accident.

 

If you are going to take the chance and be right 100% of the time, then yes, you're throwing money away. The problem is, you don't get that guarantee in life. That's why insurance exists.

[detlef]

Their business model is based on only a small percentage of the insured pool making claims in a given period. For the unlucky 1-2% of people who need to make a claim, it's a great deal. The rest are paying for peace of mind.

 

$25-$100 per month is not going to cover your family's expenses if you are out of work for a year or more from a catastrophic accident.

 

If you are going to take the chance and be right 100% of the time, then yes, you're throwing money away. The problem is, you don't get that guarantee in life. That's why insurance exists.

Using that argument, you could say that going to casinos are a fiscally prudent thing. Because for all the people who walk away having put more into the casino than they got out, a tiny sliver made bank. The odds on the craps table are the same whether you win or lose. So, it's not a "good deal" for anyone. Some people just manage to get lucky.

 

And you don't need to be right 100% of the time. You just need to get injured no more often than "you should".

[Big Country]

Only difference would be how long would it take an individual to build up the level of reserve to match the coverage that AFLAC would payout? Obviously, short term if a person needed it early on it is more beneficial to have the insurance, long term, they may put in more than the payout, depending on what level that is.

 

If you;re talking 100,000 in coverage, it would take your typical person quite a while to build that up in reserve for an "emergency fund", if you;re talking 5K or something, than a "rainy day" fund, if disciplined enough to keep it as that, may work.

[Perchoutofwater]

Aflac is great for the undisciplined, and unfortunately that is the majority of the population right now. Like others have said it is also a good deal if you need it early on. The odds are you won't, but it is nice if you have it, if you don't already have your own prudent reserve. I don't look at it as a scam, but as a way to help those that lack the discipline to save for a rainy day.

[Ursa Majoris]

Only difference would be how long would it take an individual to build up the level of reserve to match the coverage that AFLAC would payout? Obviously, short term if a person needed it early on it is more beneficial to have the insurance, long term, they may put in more than the payout, depending on what level that is.

 

If you;re talking 100,000 in coverage, it would take your typical person quite a while to build that up in reserve for an "emergency fund", if you;re talking 5K or something, than a "rainy day" fund, if disciplined enough to keep it as that, may work.

This. It's a bridge in the early years, same as any insurance. Anyone who has a nice big wodge of cash to meet emergencies doesn't need insurance.

 

On a side note, though I am generally suspicious of insurance companies as a bunch of criminal weasels for the most part, I have heard that Aflac is actually quite good. Entirely anecdotal but there it is.

[detlef]

Only difference would be how long would it take an individual to build up the level of reserve to match the coverage that AFLAC would payout? Obviously, short term if a person needed it early on it is more beneficial to have the insurance, long term, they may put in more than the payout, depending on what level that is.

 

If you;re talking 100,000 in coverage, it would take your typical person quite a while to build that up in reserve for an "emergency fund", if you;re talking 5K or something, than a "rainy day" fund, if disciplined enough to keep it as that, may work.

Judging by what these guys were saying, it didn't seem like there was anything in their menu of options that would payout $100K under any circumstances. Well, besides life. And in that case, there are likely much better vehicles that double as a retirement account for that.

[Big Country]

Using that argument, you could say that going to casinos are a fiscally prudent thing. Because for all the people who walk away having put more into the casino than they got out, a tiny sliver made bank. The odds on the craps table are the same whether you win or lose. So, it's not a "good deal" for anyone. Some people just manage to get lucky.

 

And you don't need to be right 100% of the time. You just need to get injured no more often than "you should".

 

 

No, because a catastrophic event or being out of work for a year costs you a lot more than the $25-100 per month. It can cost you your livelihood, your home and more.

 

In your casino example, you are only putting at risk the amount you spend, not your entire livelihood (other than those with a gambling problem), ideally for entertainment, but with the chance of hitting a big jackpot. The difference is, with insurance, you are paying for that peace of mind of knowing that in case of an accident or event, you will be protected and not lose your home, etc. Completely different things.

 

 

 

Let's take your restaurant for example. Do you have fire insurance? I would assume yes. It may be because it is required of you to get a business license, but let's say it isn't. Why would you have fire insurance? Could it be because in the unlikely event that you do have a fire, you would not be able to rebuild/repair your restuarant, make up for the lost sales/income, etc. if you did not have the insurance, and quite possibly be financially ruined for life.

[matt770]

Using that argument, you could say that going to casinos are a fiscally prudent thing. Because for all the people who walk away having put more into the casino than they got out, a tiny sliver made bank. The odds on the craps table are the same whether you win or lose. So, it's not a "good deal" for anyone. Some people just manage to get lucky.

 

And you don't need to be right 100% of the time. You just need to get injured no more often than "you should".

 

The difference is that if you lose in a casino, it's money you could afford to lose and you go home. If a forklift rolls off a loading dock and crushes your legs, maybe you lose your house if you don't have adequate insurance.

[detlef]

No, because a catastrophic event or being out of work for a year costs you a lot more than the $25-100 per month. It can cost you your livelihood, your home and more.

 

In your casino example, you are only putting at risk the amount you spend, not your entire livelihood (other than those with a gambling problem), ideally for entertainment, but with the chance of hitting a big jackpot. The difference is, with insurance, you are paying for that peace of mind of knowing that in case of an accident or event, you will be protected and not lose your home, etc. Completely different things.

 

 

 

Let's take your restaurant for example. Do you have fire insurance? I would assume yes. It may be because it is required of you to get a business license, but let's say it isn't. Why would you have fire insurance? Could it be because in the unlikely event that you do have a fire, you would not be able to rebuild/repair your restuarant, make up for the lost sales/income, etc. if you did not have the insurance, and quite possibly be financially ruined for life.

Well, the fire insurance deal is a fine argument. I suppose the issue I had is with some of the cheaper policies they were selling, because those are the ones they kept going to (likely because they knew who they were ultimately selling to and that they weren't going to get very far selling packages that cost more than $5-$20 a week, and let's face it, $25 is not going to buy you much. Little enough that it makes sense for almost nobody. We're talking a couple hundred here, a couple hundred there.

 

Short and Long term disability, things like that, I get. Of course, those aren't cheap. But, in fairness, I should have worded the title and my initial argument better. I would also guess that it is those "too cheap to pass up" policies where they make their money.

[Big Country]

Judging by what these guys were saying, it didn't seem like there was anything in their menu of options that would payout $100K under any circumstances. Well, besides life. And in that case, there are likely much better vehicles that double as a retirement account for that.

 

I'm speaking of insurance in general terms.

 

 

Every individual has to weight the cost of the insurance vs. the benefit.

 

 

The whole idea, as I believe muck once put it, is to insure against that which could ruin you. For example - life insurance and also, if not more importantly, long term disability, as at my age (33), I believe stats show I am much more likely to be permanently disabled than to die, but, either way, the concept is the same. I put a small chunk of change away now to provide for my family in the event that I either die or become disable to the point that I can no longer provide for them financially. I could not do this without insurance. The hope with insurance is that I will never have to use it, but, if I do, at least I know that my family will not lose our house, will not live in poverty, will be able to still afford to go to college, etc. If I did not have the insurance, my income could not be replaced and more than likely the house would have to be sold and money would be a lot tighter (unless my wife remarried, hopefully to a very rich person that would take care of my kids as if they were his own). For me, the cost of insurance is well worth knowing that my family will be taken care of in the even I am no longer able to provide for them. For others, or those that are much more wealthy and this is not a concern, it could be considered a wasted expense.

[Square]

Most of their "products" that I've viewed are a waste IMO. Everyone should have some kind of a rainy day fund. If you have term life insurance, long term disability insurance, and a decent rainy day fund to cover short term gaps, I see no place for Aflac. If you are a momo and have no idea what your money does every month than Aflac "might" save your butter if you really can't work because you broke your arm during ski trip and you live check to check.

[detlef]

The difference is that if you lose in a casino, it's money you could afford to lose and you go home. If a forklift rolls off a loading dock and crushes your legs, maybe you lose your house if you don't have adequate insurance.

I guess my issue was with the manner in which you phrased it. It still isn't a "good deal". It was simply a bad deal that was ultimately worth it because you needed it. The deal is the deal whether it comes through or not.

 

It's a common mistake. People define odds as good or bad based how long they are when they should be basing them on what they are relative to the payout.

 

Something that has a million to one chance of happening that pays 999,995 if it happens is better odds than something that has a 1 in 3 chance but only doubles your money if it comes through.

[Big Country]

Short and Long term disability, things like that, I get. Of course, those aren't cheap. But, in fairness, I should have worded the title and my initial argument better. I would also guess that it is those "too cheap to pass up" policies where they make their money.

 

 

Some things make sense to insure. Others do not.

 

 

Death, disability, etc., make sense.

 

Paying $50 to get a 4-year warranty on my $300 digital camera does not make sense (though, with the way my wife seems to manage to break these things, it might).

 

I am sure the bulk of the policies they would present would not make sense to you or me, and may not make sense to your employees either, but perhaps for a living paycheck to paycheck person, paying an extra $10 a month on a policy that covers $500 for medical expenses (say, thier deductible on a medical plan) it may be worth it, especially if they have no savings to speak of to tap into in the event they do need to go to the doctor or ER, etc.

[Ursa Majoris]

Everyone should have some kind of a rainy day fund.

"Should" being the operative word. In reality, few have sufficient.

[Perchoutofwater]

Judging by what these guys were saying, it didn't seem like there was anything in their menu of options that would payout $100K under any circumstances. Well, besides life. And in that case, there are likely much better vehicles that double as a retirement account for that.

 

My guess is most of the people working for you consider it a job and not a career. Most probably have the dream of eventually finding a career where they will make more money than they do waiting on or busing tables. This cheap insurance is something the can have now that they can afford now in the event of something happening now. The idea of having something as a retirement account to most of your employees is foreign. I know that I'm still fairly young with pretty good earning potential, and I do not carry whole life insurance. I have a nice size term life policy, but feel that I have better retirement options than a whole life policy could provide for the difference in what term versus whole life requires. You can look at Aflac as kind of like a term policy for disablement. It is not geared toward retirement, and if it was it would be much too expensive for most of your employees to purchase. Personally I don't see any reason not to offer it to your employees unless it is cost prohibitive to you. It is a nice option for them, if they think it fits their needs.

[detlef]

My guess is most of the people working for you consider it a job and not a career. Most probably have the dream of eventually finding a career where they will make more money than they do waiting on or busing tables. This cheap insurance is something the can have now that they can afford now in the event of something happening now. The idea of having something as a retirement account to most of your employees is foreign. I know that I'm still fairly young with pretty good earning potential, and I do not carry whole life insurance. I have a nice size term life policy, but feel that I have better retirement options than a whole life policy could provide for the difference in what term versus whole life requires. You can look at Aflac as kind of like a term policy for disablement. It is not geared toward retirement, and if it was it would be much too expensive for most of your employees to purchase. Personally I don't see any reason not to offer it to your employees unless it is cost prohibitive to you. It is a nice option for them, if they think it fits their needs.

Well, for the same reasons they aren't in a position to start a retirement account, life insurance may not make a whole lot of sense either. I mean, that only matters if you have people depending on you. Given their age, most are either single or, at very least do not have kids.

 

Net net, I am (and was) certainly planning on letting these guys talk to my staff. There is no cost to me and the savings to me are minute (basically the difference in matching FICA because their contributions are pre-tax). It's not my position to decide what is good for them. I think I just want to give them a little heads up about what it costs vs what it does for them. For instance, rather than spending on the cheap policies that hooks them up with a couple hundred here and there for minor stuff, sign up for one of those "way to save" deals like they have at Wachovia. $100 a month, every month, and next thing you know, you've got more than enough to cover what this policy would and you get to keep it in the likely event that you don't need it.

 

As for not using whole life, I like it because there are only so many tax deferred savings vehicles and we've always maxed out our 401K and Roth, so that was all that was left. At least that I know of.

Edited September 22, 2010 by detlef

[Square]

"Should" being the operative word. In reality, few have sufficient.

I guess I'm just not going to say Aflac is a good "product" just because a lot of people are chitty with their money. People that want to insure against breaking their arm or getting cancer sounds a lot more like a fool being parted from their money than anything else.

[nuke'em ttg]

Got a meeting with the Aflac dude friday, my monthly expenses are 7K will you cough it up and for how much. He mentioned the next level big 3 Cancer/stroke/heart....we've got health insurance and plenty of life insurance, guess it depends on the numbers. Reason i'm lookin is ASHI just got them on board as a partner so i thought i'd get a group rate, wrong i really hate having to belong to an association that really does nothing for me but list my name

[SayItAintSoJoe]

The way I look at it it’s all about price vs. peace of mind. If the price is right for the peace of mind having the insurance buys me than I get the insurance. Whether or not you have the money in a “rainy day fund” to cover your expenses in the event you can’t work is irrelevant. If you have 50K in a rainy day fund and you don’t have insurance to cover your expenses if you are out of work, than each day that you go without insurance you are risking that 50K. I have my house paid off but I don’t go without homeowners insurance because I don’t want to risk the loss. What’s a paid off house other than a bunch of money? So if the price is right to insure my house or anything else of value, I get the insurance.

Edited September 24, 2012 by SayItAintSoJoe

[detlef]

Got a meeting with the Aflac dude friday, my monthly expenses are 7K will you cough it up and for how much. He mentioned the next level big 3 Cancer/stroke/heart....we've got health insurance and plenty of life insurance, guess it depends on the numbers. Reason i'm lookin is ASHI just got them on board as a partner so i thought i'd get a group rate, wrong i really hate having to belong to an association that really does nothing for me but list my name

 

I'm having a harder and harder time understanding what you say these days.

[SheikYerbuti]

People that want to insure against breaking their arm or getting cancer sounds a lot more like a fool being parted from their money than anything else.

 

 

My sister went through 2 bouts of cancer. Her medical bills were in excess of 2 million dollars. If it weren't for insurance our entire family would have been ruined forever. Fools indeed.

[nuke'em ttg]

The way I look at it it’s all about price vs. peace of mind. If the price is right for the peace of mind having the insurance buys me than I get the insurance. Whether or not you have the money in a “rainy day fund” to cover your expenses in the event you can’t work is irrelevant. If you have 50K in a rainy day fund and you don’t have insurance to cover your expenses if you are out of work, than each day that you go without insurance you are risking that 50K. I have my house paid off but I don’t go without homeowners insurance because I don’t want to risk the loss. What’s a paid off house other than a bunch of money? So if the price is right to insure my house or anything else of value, I get the insurance.

 

i don't like the idea of my rainy day fund payin bills sure an A/C or water heater but beyond that it's all pleasure, i can write off the insurance and the the kitty stays on a beach somewhere

[detlef]

I don't think anyone likes spending their emergency funds on things that suck. But that doesn't change the math behind things. And, for the record, I'm all for insuring against anything that you simply can't afford to cover and would truly ruin you if it came up.

 

However, anything you actually can afford to self-insure, you should. Once again, if you're getting cash money, then the insurer is not taking advantage of any margins other than what they're making off you. So, you're paying dearly for that peace of mind. If the odds were good enough that you'd need the money, it would cost more to have access to it.

 

And, again, I'm not saying to live life on the edge. If you've got a family that counts on you as an earner, you owe it to them to insure that you can continue to provide for them if you're gravely injured or killed.

 

However, I think a lot of people look at some of these insurance policies and see what appears to be a pretty low premium and think, "What the hell? It costs as much as a soda a day." Or whatever BS rationale you're sold to justify buying into a bad-odds bet.

[nuke'em ttg]

i took a bad fall at work awhile brack but was lucky, right away i knew i had ta quit putting this off, the green machine can't be down or it's doomsday