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You are here: Home / Insurance / How Much Wood Could a Woodchuck Chuck?

How Much Wood Could a Woodchuck Chuck?

June 21, 2012 by The Other Guy 13 Comments

Anyone know the answer to that?  As we all know, that all depends, right?  No, it doesn’t depend on whether or not the woodchuck could chuck wood, but rather whether he was healthy enough to do so.  So my question to you, dear reader is this: If, God forbid, you weren’t able to get up and go to work tomorrow because you were too sick or hurt…how much chucking would you get done?

We’ve all seen the quacking Aflac commercials, I know I’ve laughed at most of them.  But when was the last time you actually thought about the implications of what that magical duck was saying?  Here’s a little exercise I go through with all my clients – you can play along at home.  Assume the following:

  • You’re an average white-collar worker making $60,000 per year and you get a $10,000 per year bonus
  • You have a nice ‘n comfy group disability policy that pays 60% of your base salary if you’re too sick or hurt to work
  • You’d really like to retire – and your family is counting on you being able to work so that you can save to reach that (or any other) goal

Here’s how I go through this little exercise – it kinda drives the point home:

Mr. Client.  Play along with me a second.  Let’s assume you head into work in the morning and your boss says, “Jim, you’re a wonderful employee, but we have to let you go.  Pack up your desk.”  Just like that you’re unemployed.  Since it’s only 11:30 A.M., you decide to head out to get something to eat before heading home to break the news to your lovely wife.  What’s your favorite fast-food restaurant?

McDonalds.

Excellent.  So, you’re at McDonalds and you see they’re hiring.  A nice little help-wanted sign stares you right in the face.  So, since you’re now jobless, you ask the manager for an interview.  After a short period of time he says, “Jim, you’re super awesome and we’d love you on the team.  We can’t pay a whole lot, but we’d be happy to pay you $60,000 per year.”

Figuring you’re in some kind of third dimension you run across the street to your 2nd favorite restaurant…which is…

Wendy’s.

Right, Wendy’s.  A quick chat with the manager and he wants you there too!  This is your lucky day!  He says, “Jim, we’d love you on our team, too.  We can’t pay a lot, but we can pay $58,000.”

Which job do you take?

McDonald’s right?  (all other things being equal)

So, before you sign your professional McDonald’s contract you ask the sixty-four thousand dollar question:

“What happens if I get sick or hurt and unable to work for an extended period of time?”

“Great question Jim.  We can’t pay you a lot of money – but we can pay you $30,000.”

Armed with this info, you dash over to Wendy’s.  You ask the same question.  The Wendy’s manager says, “Great question Jim.  We can’t pay a lot, but we can pay you $48,000.”

Now what?

If you’re like most clients, looking at this issue in the big picture helps solidify it.  It generally makes a lot of sense to forfeit a small amount of income today in exchange for guaranteed income forever.  There are hundreds of bells-and-whistles that make disability insurances different between companies, but suffice it to say, your group coverage isn’t good enough.  Generally speaking, group policies:

  1. Are considered taxable income when you receive the benefits
  2. Are canceled as soon as you leave employment
  3. Only cover base salary
  4. Require you to visit “company” doctors

I’m not saying group policies are bad – they’re not.  What they are, however, are incomplete.  Consider adding an individual disability policy to supplement your group disability policy.  When you own an individually purchased contract:

  1. The benefits are tax free
  2. Are guaranteed renewable through age 65 (or 67 depending on the company)
  3. Can cover all your income – including bonuses and retirement plan matching
  4. You can use your own doctor for reviews

Disability insurance policies are like car and home owner’s policies.  The premiums suck until you need to collect.  And trust me, you’re not going to be on your death bed saying “What the heck.  I paid $800 per year for 65 years and never had a house fire.”  Instead, you’ll say, “Boy was I lucky.”  Disability is the same way.  Go check out a couple companies and get some quotes.  My bet is you’re talking about less than $100 per month.  Not chump change, I know.  But the price is so much less than the risk.  Go get it done.

It’s all about chucking that wood.

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Filed Under: Insurance, money management, Planning, risk management

Comments

  1. Money Beagle says

    June 21, 2012 at 8:07 am

    Good analogy. Our company hasn’t increased salary and has cut retirement matching, but one thing they offer is really cheap disability and life insurance options. I think you added a zero to what McDonald’s and Wendy’s would likely pay 🙂

    Reply
  2. TheOtherGuy says

    June 21, 2012 at 10:16 am

    thanks, Mr. Beagle. Huh. Ya know what? I actually know a guy named Mr. Beagle. Weird. I digress. Group benefits (when you can find them) are great; take all the freebies you can get your hands on. I often find that it only covers a small percentage after tax, hence the individual policy. Check ’em out, they’re not too expensive. And yes, McD and Wendy’s salaries were exaggerated…a bit. For effect.

    Reply
  3. Lance@MoneyLife&More says

    June 21, 2012 at 10:42 am

    Great topic. I admit I don’t consider this enough and I bet a lot of people are in the same boat as me. Work does offer disability so at least I have that.

    Reply
  4. Brent Pittman says

    June 21, 2012 at 12:29 pm

    I currently don’t have disability, beyond what social security would cover. I know this is a need, but an extra $100 a month really is a big deal at the moment.

    Reply
  5. From Shopping to Saving says

    June 22, 2012 at 4:28 pm

    Very awesome post… so clear and concise about a topic that I have never looked into. When we’re young we think we are invincable. But I will have to look into this more. I’m going to check out what my company offers.

    Reply
  6. femmefrugality says

    June 22, 2012 at 6:56 pm

    These policies are so important. Some of them even include paid medical leave for women while they’re on maternity leave, which is a huge boon when you’re post partum.

    Reply
  7. Barbara Friedberg says

    June 24, 2012 at 11:59 am

    I love the title of the post :). A reminder of days gone by. Personally, I hate insurance, yet have quite a bit. I liked your evaluation. It takes time and money to remain insured and sometimes the payoff is…. well… never. But if you need it and don’t have it, you’re in big trouble.

    Reply
    • Average Joe says

      June 25, 2012 at 8:27 am

      I’m with you, Barbara. I can’t stand insurance. Yet, what do you do? It’s a tightrope.

      Reply
  8. krantcents says

    June 25, 2012 at 10:15 am

    Disability insurance is one of those policies that you think you don’t need. When you are young you are invincible, when you get older it is too expensive. Certainly a necessity!

    Reply
  9. Alexander Huynh says

    July 2, 2012 at 3:28 am

    Well written and great title! Made me intrigued!

    Reply
    • Average Joe says

      July 3, 2012 at 9:54 am

      Welcome to the blog, Alexander! You have an intriguing blog yourself.

      Reply
  10. Julie says

    January 22, 2013 at 2:01 pm

    This is a scary thing to think about but a necessary one. Planning for the worse ensures there are no surprises!

    Reply

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    October 26, 2012 at 9:01 am

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