Colonial Penn Life Insurance Company spends millions of dollars each year on TV ads.
Marketing works, and many shoppers — especially older adults — consider this company a good option for final expense insurance.
But Colonial Penn has its flaws. It may be the best insurance option for some shoppers; however, most people can find better coverage, at lower monthly premiums, elsewhere.
Check out this review for a closer look at Colonial Penn Life Insurance. Should you choose this company, or can another insurer provide more coverage for less?
Colonial Penn Life Insurance
Colonial Penn sells a lot of guaranteed acceptance life insurance policies. Guaranteed acceptance policies do not require a medical exam and ask very few health questions.
Just about anyone within the right age range (50-85) is guaranteed coverage. But this guarantee comes at a cost: sky-high premiums and small face amounts.
Unless you truly can’t qualify for a simplified issue life insurance policy or a final expense policy — also known as burial insurance — you’ll pay too much with Colonial Penn.
Final Expense or Final Resort?
Colonial Penn’s marketing campaigns aim for senior citizens who do not have life insurance and can’t easily qualify for fully underwritten coverage — people who think they need guaranteed issue coverage.
Famous and trustworthy spokespeople such as Alex Trebek, Ed McMahon, and Joe Theismann help assure TV audiences Colonial Penn offers them the coverage they need.
These ads don’t lie. Just about anybody can, indeed, qualify for this kind of life insurance. But these ads do fail to mention Colonial Penn’s high costs and low coverage amounts.
They also don’t inform viewers that an independent life insurance agent could find them more coverage for less money — and with no waiting periods or medical exams.
There’s a reason insurance agents call guaranteed issue the last resort for coverage.
Colonial Penn Company Lawsuits and Disgruntled Customers
Colonial Penn has been sued countless times for charging inflated premiums that are not risk justified or even fully disclosed to policyholders.
Consumer advocacy websites get inundated with complaints from beneficiaries who state the death benefits they received were lower payouts than they expected.
The Better Business Bureau (BBB) currently gives Colonial Penn an A+ because the company responds to each and every complaint. According to Colonialpenn.com, the company offers a 30-day money-back guarantee in case you change your mind about the coverage.
However, many customers don’t become upset with their life insurance plan until a few years go by and the price for their term coverage starts to increase — long after the 30-day full refund period has expired.
Is Colonial Penn Life Insurance Legit?
Despite my problems with Colonial Penn’s marketing tactics, the company is not fraudulent. It’s not part of a scam. In fact, the company has a reputable past.
Its financial strength isn’t stellar, but it’s also stable. A.M. Best currently rates Colonial Penn A-.
It was founded about 60 years ago in Philadelphia, Pennsylvania, by Leonard Davis, co-founder of the AARP, and was originally a provider of insurance for AARP members. The company changed hands a few times over the past few decades and now is owned by CNO Financial Group of Carmel, Indiana.
Colonial Penn Life Insurance Products
So now that you know so much about the company and its current business practices, it’s time to take a look at the life insurance policies Colonial Penn sells:
Guaranteed Acceptance Life Insurance
In most states applicants ages 50 to 85 can qualify for this policy which could provide about $15,000 in coverage with no medical exam. Colonial Penn’s ads claim you won’t be asked health questions, but you may have to answer one or two general knock-out questions.
- Anyone in the age range can usually qualify.
- Expensive for such a small death benefit.
- Confusing rate schedule.
Permanent Whole Life Insurance
Applicants ages 40 to 75 can get up to $50,000 in coverage through this whole life policy which does not expire and builds a small cash value. The application won’t include a medical exam but you can expect to answer some health questions. Not everyone will qualify but most people in the age range will.
- Easy to qualify.
- Level premiums.
- Expensive premiums.
- Lack of transparency about cash value’s growth and interest rates.
Renewable Term Life Insurance
Applicants ages 18 to 75 can buy up to $50,000 in term life insurance. No medical exam is required but the application will ask some health questions.
- Easy to qualify.
- 75 is a generous age for getting a new term policy.
- Price increases every 5 years.
- Premiums are expensive.
What Do These Insurance Products Have In Common?
All three of these coverage options — and their slight variations — are easy to qualify for but they also offer small coverage amounts at a high price.
Life insurance rates from Colonial Penn give the impression of transparency and simplicity but in reality they mask a more complex rate schedule.
For its guaranteed acceptance coverage, Colonial Penn sells “units of coverage” instead of selling policies by face amount. We’ll explore this more below.
None of these policies require a medical exam which makes them convenient to buy, but this does not make the Colonial Penn Life Insurance Company unique.
Colonial Penn’s whole life and term life policies offer an optional accelerated death benefit rider that lets you claim part of the coverage early if you have a heart attack or get diagnosed with a condition such as Alzheimer’s or some forms of cancer. The guaranteed issue policy does not offer this feature.
Colonial Penn Life Insurance Rates
It’s difficult to report on premium rates for Colonial Penn Life Insurance policies because the company has its own unique way of selling policies.
If you’re familiar with life insurance already, you know about term life policies and whole life policies; you know that your amount of coverage impacts your premiums. You know the insurance company’s assessment of your health affects premiums, too.
Although Colonial Penn uses this same language, these words don’t always mean the same thing. For example:
Term Life Pricing
When you buy a term life policy you normally lock in a premium rate that lasts throughout the policy’s term, whether it’s 10 years, 20 years, or 30 years. During this term your premium stays the same or level.
With Colonial Penn’s term policy your price increases every five years, and you can keep the policy until you reach age 90. You wouldn’t get level premiums.
The twice-a-decade rate spikes become more significant as you age. A 50-year-old man would pay about $56 a month for $50,000 in term life coverage. An 88-year-old male would be paying $800 a month for the same coverage.
That’s right — $800 a month for $50,000 in life insurance coverage. That’s incredibly expensive.
Whole Life Pricing
Colonial Penn’s whole life insurance works more like a traditional permanent life insurance product. The coverage doesn’t expire as long as you pay the premiums (and are younger than 121).
What’s more unusual is Colonial Penn’s regimented death benefits. You could by a $10,000, $20,000, $30,000, $40,000, or a $50,000 policy.
While you could be denied coverage based on your answers to the company’s health questions, most applicants age 40 to 75 will get approval.
However, this blanket approval drives up the prices you’ll pay. If you’re healthy enough to qualify for a more exclusive policy with another insurer, you can save a lot on your premiums.
Guaranteed Acceptance Starting at $9.95 per Month
Colonial Life makes its living on these guaranteed issue policies which it sells by units of coverage instead of by dollar amount of coverage.
Selling insurance by “units” lets the company charge a simple price — $9.95 per unit per month. This simple life insurance quote can mislead shoppers.
The problem with this approach is that the shopper may not know what a unit is worth — what they’re getting for their $9.95 a month. The confusion is understandable because the value of a unit changes as you age.
A $9.95 unit provides $1,786 in coverage for a 50-year-old; the same $9.95 unit provides only $418 in coverage for an 85-year-old.
You could buy up to 8 units which would cost $79.60 a month. For an 85-year-old this premium would provide maximum coverage of $3,344. Just as perspective: It’s not uncommon for an 80-year-old to buy $10,000 or $15,000 in coverage!
Like most guaranteed issue policies, Colonial Penn’s requires a two-year waiting period before your full coverage level is available to your beneficiary. If you died within the two-year limited benefit period, your death benefit amount would be a fraction of its value unless your death was considered an accidental death.
Why Guaranteed Acceptance Insurance is NOT Ideal
Like I said above, Colonial Penn sells a lot of guaranteed issue insurance. Guaranteed acceptance is the best deal for some people who happen to be in poor health and couldn’t qualify for a better policy anyway.
But if you do not have a serious health condition, you can get coverage for less money — normally a lot less money. Why? Because the insurance company takes a lot more risk with guaranteed acceptance.
Higher Risk = Higher Rates
Since it requires no medical exam and asks so few, if any, questions about your health, Colonial Penn doesn’t know whether you’re at risk of dying next week or in 20 years. To stay in business it has to assume everyone’s a high risk and charge accordingly.
The problem I have with Colonial Penn is the way it markets these policies as the best thing since the invention of the Internet. The company also pushes the fact that life insurance should primarily be about covering a person’s funeral costs so family members do not have to pay for the final expenses of their loved ones.
Life insurance, however, is about much more than covering funeral costs. For reference, a 50-year-old in good health could buy $500,000 in term life for about $80 to $90 in monthly payments with a medically underwritten term life insurance policy.
That’s 10 times the coverage for the same price!
Life insurance should really be about securing the financial futures of loved ones, which guaranteed life insurance cannot do.
The life insurance industry has tons of better options for people in average, good, or excellent health who don’t smoke and don’t have a chronic health condition. Even shoppers who do have health problems can often find better coverage from other life insurance companies.
How Much Life Insurance Do You Need?
A Colonial Penn Guaranteed Acceptance policy will pay out only a fraction of the death benefit you could get with a medically underwritten term policy or even many whole life insurance policies.
So one of the first questions to answer is how much coverage do you need?
Many people buy a life insurance plan so they can provide financial stability for their loved ones after they die. The death benefit from your policy could pay off credit cards, pay off a mortgage or auto loan, or simply pad a bank account for future needs.
If this is true for you, a Colonial Penn policy probably won’t be large enough for you.
If you’re buying life insurance for final expenses, you may need only $10,000 to $15,000 in coverage. A Colonial Penn policy could do the job, but as I said above, you could find better coverage for less if you’re in average or good health or better.
Colonial Penn Alternatives
If you couldn’t tell from this article, we aren’t a huge fan of Colonial Penn. If you have one of its policies, or you’re looking for a plan, we highly recommend looking elsewhere.
Yes, having a plan from Colonial Penn is better than having no life insurance at all, but it’s still not the best choice. Who do we recommend instead?
Here are 3 of the best life insurance companies of 2020.
- Haven Life – For quick-term life insurance coverage especially if you’re healthy. Haven Life sells only A.M. Best top-rated MassMutual policies.
- AIG Direct – For strong company reputation; AIG writes a ton of quality policies.
- Banner Life – For flexibility and customer service.
Is Colonial Penn Life Insurance Best For You?
If you really do need guaranteed issue coverage, a Colonial Penn life insurance policy may be just what you need.
I’m simply not a fan of the company’s marketing because it misleads people into buying less coverage at inflated prices.
If you’re considering Colonial Penn, read your contract from top to bottom a couple of times before signing it. You should know exactly what you’re getting into.
And, if you happen to live in Vermont, New York, or Montana your state doesn’t allow Colonial Penn Life Insurance Company to sell you a policy.