Guaranteed life insurance: preying on the elderly?

Guaranteed life insurance: preying on the elderly?

If you’ve ever watched cable TV, you’ve probably seen it: an important message from Colonial Penn life insurance – featuring Alex Trebek, selling guaranteed life insurance for seniors! The commercial targets people between the ages of 50 and 85, and promises them affordable guaranteed issue life insurance with a rate lock ("Your rate can NEVER increase for ANY reason."). No health questions or exam required.

Alex Trebek comes in with the kicker: coverage options start at "less than 35 cents a day."

Since guaranteed life insurance doesn’t require health questions, it takes mere seconds to get Colonial Penn life insurance quotes. Here are the quotes I got at Colonial Penn when I posed as a 60-year-old couple from California looking for life insurance:
one unit of guaranteed life insurance for a 60 year old man from california

The true cost of guaranteed issue life insurance

The quotes that I received are priced out per "unit" of life insurance. Colonial Penn’s guaranteed life insurance works by adjusting the benefit amount (also known as coverage) per unit based on your age, gender, and location. Each unit will always be $9.95, but how much coverage you get for $9.95 will change.

If you want to get more coverage, you have to buy more units. So while, yes, you technically can get coverage for $9.95 per month, it’s not exactly comprehensive. Guaranteed life insurance used to be called "burial insurance" – basically, get enough coverage so any costs associated with your death are covered. The average funeral in America costs anywhere between $7,000 and $10,000 – not something that can be covered by one unit of guaranteed life insurance.

How many units would our hypothetical 60-year-old couple need to buy before their respective funerals are covered?

how many guaranteed life insurance units are needed to pay for 60 year old funeral

That’s significantly more expensive than the price advertised for a pretty small amount of coverage.

But what if you’re older, living on a limited fixed income and with health conditions that would prevent you from qualifying for traditional life insurance? Let’s take a look at how much Colonial Penn’s guaranteed life insurance would cost a 75-year-old couple:

one unit of guaranteed life insurance for 75 year old

how much guaranteed life insurance would cost to cover 75 year old funeral

And here’s the catch: if you die within two years of buying your guaranteed life insurance policy, you don’t get the full death benefit amount you’re paying for. Instead, Colonial Penn will just refund the premiums you’ve paid. While that’s better than no refund at all, it’s not the benefit that people who don’t read the fine print will be expecting.

Who might need guaranteed issue life insurance?

At this point, you’re probably thinking: why would anyone buy guaranteed life insurance?

For the most part, people looking at guaranteed life insurance might not have any other options because fully underwritten life insurance would be too expensive for them. The selling points of guaranteed life insurance specifically target those who are elderly, in poor health, and living on a limited income. It’s easy for Colonial Penn and other insurance companies to appeal to them: Guaranteed issue life insurance is more costly, but at least there will be enough money to bury you and maybe even give your grandkids a small inheritance.

Options besides guaranteed issue life insurance

If you’re over 50 but haven’t retired yet, it may make more sense to funnel money into your retirement accounts than it does to buy guaranteed life insurance. Put aside $84 every month and you’ll have enough cash to cover your final expenses in ten years.

If you’re in decent health, you may still be able to get traditional life insurance (which requires health questions and usually a quick medical exam). If you qualify, traditional life insurance will always be a more cost-effective option than guaranteed acceptance life insurance.

You can also look into simplified issue life insurance. Simplified issue life insurance offers life insurance that doesn’t require a medical exam, but still requires you to answer health history questions. You can be declined for simplified issue life insurance if you don’t meet the eligibility criteria.

Finally, final expense insurance may be a viable option. It's similar to guaranteed issue life insurance in that it's a relatively small coverage amount, but it's more than you'll typically get with guaranteed issue and there are some health qualifications.

If you are elderly and living on a limited income, there’s a good chance you don’t have internet access and you are not reading this article. However, if you are reading this article, maybe you have elderly parents or relatives. If they mention guaranteed life insurance, make sure they know both the benefits and the drawbacks, and that they have other options available.

Image: Patrick