Should One Buy Insurance Like Aflac?

Right off the bat I must admit I am opposed to all insurance in principle, as I believe mandatory insurance is the primary reason healthcare is so expensive and complicated. I am, however, a law abiding citizen so I buy the insurance I must to obey the law and survive in our insurance driven culture. Aflac and other insurance are what many call “luxury” insurances, which means they are nice but not necessities.

Many things we call “luxury” are actually counter to what I believe a sound financial plan entails. Call me old-school, but I believe in saving and only buying what you need / can afford, and not buying anything (as much as possible) on credit. I say don’t look to someone else for your own financial security or safety net, and this includes insurance companies.

In principle Aflac “rewards” you for seeing the doctor, getting injured or sick, aka bad things. Yet, these things can be planned for financially with good home budgeting plans.

Consider, for easy number’s sake, the following example. One has a $100 extra a month they are looking to use for something, they can either save / invest it or they can buy Aflac.

If they put the money in Aflac, they only see a “return” or benefit if they have a qualifying event in their lives. Look Aflac is in the business to make money, if they on average gave out as much money as people pay in, they wouldn’t be in business, this means that on average the normal user will pay more than they get out of it, but that’s the risk, the gamble many people want to take.

This means that in 10 years of having Aflac they would have paid into it $12,000 and have taken a percentage out of that back as payments for health situations in their lives, but most assuredly not the full $12,000.

Now Aflac, like all good insurance companies, does not simply place the money in a bank account earning .25% interest waiting for the customer to need the money, no, they take a percentage of it and make a good return on it investing it. This means they could be making a multi percentage return on the customers money, so that even if they paid out the full $12,000 that the customer put in, they would have at least the interest they made on that “free” loan to them as profit. Let’s assume they make the flat rate of 5% a year on all that money (the best possible example). This means that in 10 years (with no pay outs) they have the potential to have made: $3,528.23 on the free loan of $12,000.

What if the customer simply invested the money themselves? Again assuming a 5% return on the investment and no payouts, the customer would have a maximum amount of $15,528.23 sitting in their investment account after 10 years. Remember Aflac is a “luxury” which means it is paying you money that is above and beyond what other insurance pays. Aka. if you have a good savings plan and household budget you would almost not ever need the money that Aflac would pay you, but the selling point is simply that: “wouldn’t it be nice to have that money?”, which of course on the surface the answer is yes, but not when you actually look at the dollars. The other upside of saving all the money yourself, is you actually have access to all that money to use for whatever you want, Aflac will only give you the money on their terms for what kind of things they decide.

The down and dirty is this: Aflac is betting you won’t get sick, or at least not use their service more than you put in. If you get Aflac you are betting that you will get sick, and enough so that you use more than you put in, otherwise why would you just give them free money? Why not bet on yourself, and give yourself that money and invest it wisely? This seems like the best, and wisest choice to me, unless you have lots of extra money that you can “afford” to buy luxuries, but is even this good financial stewardship?

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