The Inside Scoop on Colonial Penn Insurance

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If you’ve ever watched television, you have seen advertisements for Colonial Penn Life Insurance. Think of the late Alex Trebek. He’s been their paid endorser for years now, and his “Price, price and price” ads run annoyinglyoften on American TV.

So, their life insurance strives to be affordable. Is it? Let’s dive in for the rest of the story. Below is an overview on this article.

Who Is Colonial Penn?

Leonard Davis co-founded Colonial Penn in Philadelphia, PA over 60 years ago in partnership with the American Association of Retired Persons (AARP). Initially they offered affordable life insurance to AARP members who were generally age 50 and older.

They were the first to introduce a guaranteed acceptance life policy in 1968 for people 50 to 85 years of age, meaning no one who fit that category would be declined. They still offer this.

Colonial Penn is a solid company with decent financial ratings. Your money is safe with them, and history shows they pay out when proper. Here are their ratings:

Moody            Baa1
S&P                 A-
AM Best         A-
Fitch               BBB+

Today Colonial Penn operates online and through direct mail. Anyone in the United States who is age 50 or more is probably getting regular mailings from Colonial Penn requesting their sign ups. Alex Trebek points them to the online applications.

These two methods are their primary vehicles for mining new customers. The spokesperson may change, but the message remains the same. You may remember past celebrities holding the current Alex Trebek role:  Joe Theisman, Jerry Lewis, and Ed McMahon.

Colonial Penn is licensed to sell insurance in 49 states, the District of Columbia (DC), Puerto Rico, and the Virgin Islands. It does not do business or seek customers in the State of New York, although their programs are underwritten there by Bankers Conseco Life Insurance Company.

Colonial Penn Life Insurance Product Reviews

Colonial Penn offers three distinct life insurance products:  Renewable Term Life, Permanent Whole Life and Guaranteed Acceptance. We’ll cover each in detail.

Colonial Penn Guaranteed Acceptance

This is Colonial Penn’s premiere product; the one the late Alex Trebek hawked on television. It is a whole life policy geared towards seniors with medical issues. Premiums range from $9.95 to $119.40 per month, depending on the coverage desired (December 2020).

Features:

  • Application ages are 50 to 85 in most states, and no one in this age group will ever be declined
  • Premiums are guaranteed level – they will never go up as long as you hold the policy
  • Never canceled by Colonial Penn for any reason (other than non-payment of premiums)
  • No health questionnaire or medical exam
  • Two-year limited benefit period
  • Variable coverage amounts
  • Coverage continues for your lifetime
  • Builds a cash value after one year which you can borrow against
  • You can choose your frequency of payment – monthly, quarterly, semi-annually or annually.

Most of this sounds good, and it is.  But consider this. Insurance companies are in business to make money, but here they are offering life insurance without having any idea of the applicant’s health.

To protect their financial stability, they must assume that every applicant is in poor health and death is imminent. One way they do this is through higher premiums. Colonial Penn’s Guaranteed Acceptance premiums are higher than most competitors.

The other way they slow the tide of money rushing from their own accounts to those of their customers’ beneficiaries is to limit benefits.

Let’s look more closely at the “2-year limited benefit period” feature. What this means is that most death benefits are NOT paid if death occurs in the first two years of the policy.

This is hugely limiting, since applicants are all 50 years or older. Should death occur in the first two years, beneficiaries would receive a return of premiums and 7% interest.

But, at their advertised price of $9.95 per unit (varies by coverage amount); this would fall far short of paying forfuneral expenses or any outstanding debts.

Note that this limitation doesn’t apply to deaths by “unnatural” causes. If the insured dies by accident, the policy will pay out even in the first two years. Death must occur while the policy is in force and happen within 90 days of the accident. “Accident” does not include suicide, acts of war, medical treatments or surgery, or inhaling gas or taking poison voluntarily.

“Unit” Pricing

Colonial Penn Guaranteed Acceptance differs from most others in its pricing method. They always quote “$9.95 per unit.” A “unit” is the amount of coverage sold at a specific age for $9.95 per month.

Stated differently, everyone pays the same amount per month but what they receive in return is less if they are older at the time of the sale. Anyone can buy up to 8 units which increases their coverage.

With most companies, the older you are at inception, the greater the premium paid each month is. Someone aged 50 may receive a quote of $25.00 per month, where a 51-year-old might get a $27.00 per month rate for the same $10,000 of coverage.

With Colonial Penn, it’s the reverse. The older you are the less coverage is represented by a “unit.” Each unit costs $9.95 and each applicant canbuy up to twelve units.

An example on their website shows that a male age 50 can buy one unit for $9.95 which gets him $1786 of coverage. He could buy up to twelve units at a cost of $119.40 for a maximum coverage of $21,432.

A male age 51 can buy one unit for $1732 of coverage; a difference of $54 although both men pay the same $9.95 for their unit. He could buy up to twelveunits for a maximum coverage of $20,784.

Everyone pays $9.95 per unit, but olderapplicants get lower benefits instead of paying higher premiums. At the oldest application age of 85, one unit is worth $418 of coverage with 12 units totaling $5,016 of total coverage.

These are much higher than most other guaranteed acceptance policies.

One question you should always ask yourself before deciding on this type of policy is, do I need guaranteed acceptance insurance?

Most seniors do not. Even if you have significant medical issues, you may still find affordable whole life policies that will cover you at a lower premium cost.

Because everyone is accepted regardless of health, Guaranteed Acceptance policies are a higher risk for Colonial Penn.They will price it higher to compensate.

You will find cheaper premiums elsewhere with compensation plans. For example, regular whole life policies will pay benefits Day 1 instead of Year 3!

A little insurance is better than no insurance at all, so use Colonial Penn Guaranteed Acceptance only ifyour medical condition proves to make regular whole life pricingout of reach for you.

Colonial Penn Renewable Term Life

This is the least expensive life insuranceissued by Colonial Penn. Be sure when doing your comparison shopping to compare premium prices to other term policies.

They will always appear cheaper than whole life policies and you don’t want to confuse the two.

Term life has an expiration date. It “terminates.” In Colonial Penn’s product, that termination date is age 90. When an insured person dies on his 90th birthday or later, no coverage or return of premiums results.

Even though the deceased has paid hundreds or thousands of dollars over the years, loved ones end up paying funeral expenses and remaining debts. This is a great deal for the insurance company but not for the customers.

Colonial Penn has received these premiums for years with little related expense – almost pure profit for them.

Features:

  • Application ages are 18 to 75
  • Available everywhere in the United States EXCEPT New York, Montana and the Virgin Islands
  • Coverage ranges from $10,000 to $50,000
  • Premium raises every 5 years
  • Insurance is guaranteed renewable up until age 90
  • No medical exam, but medical questions will be asked, and they will examine your prescriptions
  • Holds cash value that you may borrow against
  • You can choose your frequency of payment – monthly, quarterly, semi-annually or annually.

Applicants will be required to answer some medical questions, and in some cases an underwriter will contact the applicant for further medical information. This is to determine eligibility for the coverage. 

Here are some, but not all, of the preexisting conditions that may result in a declined application:

  • Diabetes, if dependent on insulin
  • Complications resulting from diabetes
  • Permanently disabled and wheelchair bound
  • Use of prescription blood thinners
  • Dependent on an oxygen tank
  • COPD
  • Multiple Sclerosis
  • Congestive heart failure
  • Hepatitis
  • Muscular dystrophy
  • Schizophrenia
  • Cystic fibrosis
  • Kidney failure

Other life insurance companies would accept you with some, if not all, of these conditions! Colonial Penn has a high decline rate. When that happens, they will offer you a Guaranteed Acceptance policy where you can’t be declined.

A better option is to seek coverage elsewhere. Your chances of getting accepted could be much better.

Rates are initially set based on age at the time of application and gender. Brand new policy holders can cancel their policies within 30 days without penalty and get any money already paid returned.

Note that this is called a “free look period” in the industry and is required by law. Premium rates raise every time the insured reaches a new age group; every five years except for possibly the first and last periods.

The impact of the 5-year rate hikes is not clear from Colonial Penn’s website or direct mailers. You’re told they exist, but not what you’ll be paying for the entire term. Even when you request a quote, you’re given the first month premium and nothing more.

A tiny note in the fine print asks you to call, so they can help you “walk through the quote.” This is a little condescending for a quote with the coverage and premium amounts and nothing else. Had they been more straightforward they would have said“call to get therest of the quote!”

At the time of application, you have no idea how much you’ll be paying. It’s never a good idea to sign a contract without knowing what your contractual obligations will be (premium payments), but this is what Colonial Penn asks of you.

Be wary. Call. Get that information before paying a cent. Know what you’re getting into. What do those premiums rise to every five years? What is the total you’ll be paying compared to the total your beneficiaries will receive?

These are questions you must answer to make your best decision. If you can’t get those answers, pass.

You can find better coverage at a lower cost in a whole life plan which, by definition, doesn’t expire and has guaranteed level premiums for your lifetime.

Term life insurance is a questionable investment at best, and Colonial Penn’s Term Life product is more expensive than most. With any whole life policy, you know the total costs up front. It’s a much more transparent business transaction.

Colonial Penn Permanent Whole Life

Financially, Colonial Penn’s Permanent Whole Life product fits right in the middle. It’s less expensive than Guaranteed Acceptance and more expensive than Term.

Like both other types of policies, no medical exam is required for the Permanent Whole Life Product.

You need to answer medical questions, and you may receive a call from an underwriter for further information. Possible reasons for application decline are the same preexisting conditions as listed above for their Term Life product.

They will also offer you a Guaranteed Acceptance policy if they decline your application for Permanent Whole Life.

Features:

  • Application age is 40 – 75
  • Premiums are guaranteed level – they will never go up as long as you hold the policy
  • Coverage ranges $10,000 to $50,000
  • No medical exam, but they will ask medical questions and examine your prescriptions
  • Lifetime coverage
  • Holds cash value that you may borrow against
  • You can choose your frequency of payment – monthly, quarterly, semi-annually or annually.

Rates are initially set based on age at time of policy initiation and gender. There are two cases in which Colonial Penn pricing for Permanent Whole Life is actually the best – for males aged 50-55 and females aged 50-58.

If you fit in those categories, it’s not a bad policy and should be considered. For everyone else this plan is highly overpriced.

Of all the Colonial Penn insurance plans, this one is the best bet for most people. Coverage and premiums are clearly stated and easy to understand.

Neither changes over the life of the policy, and the policy covers you for your entire lifetime. It won’t work for those with the medical conditions listed or are over 75. They will be forced back to the less-optimal Guaranteed Acceptance plans if they want to stay with Colonial Penn.

Pros and Cons of Choosing a Colonial Penn Policy

Pro:  Colonial Penn is a solid company with good ratings. You can depend on them to pay their claims.

Pro:  You can opt out of any Colonial Penn policy without penalty or cost within 30 days. They tout this as an advantage, but it’s the law. All life insurance companies must offer this opt out period.

Con: Their advertising is deceptive in that it misleads you into believing their products are better than the competition (see ‘Pro’ above). For another example, you’ll see Alex Trebek bragging of their unique “Price Lock Guarantee” on the whole life products.

Guaranteed level rates throughout the life of the policy is the definition of whole life products! They all do the same thing no matter which life insurance company issues it.

Con:  When signing up for the Colonial Penn Term Life product, you have to call to find out the real cost. Their website and promotional mailings lack specific information on the every-five-year rate hikes.

Con:  Pricing on the Guaranteed Acceptance plan is stated in hard-to-understand “units.” Since no other company does it this way, it’sa challenge to compare rates.

Con:  The only insurance available to those with severe medical conditions or anyone aged 76 to 85 is their Guaranteed Acceptance plan.

This is their most expensive plan, it has a two-year waiting period before any benefits can accrue, and it’s greatly overpriced when compared to competing firms’ whole life policies.

Con:  Colonial Penn will decline you for more preexisting conditions than other companies. Others also look at less history to make this determination.

Conclusion:  Not Recommended

The bottom line is that Colonial Penn policies are more expensive for you, and you’re more likely to be declined than with other companies’ similar policies.

Do your research and find the best insurance for you and your family. An independent insurance agent that deals with many companies can help you do just that.

About Al Kushner
Al Kushner
He is a recognized financial educator, best-selling author, speaker, underwriting specialist and the founder & CEO of Superior Mutual, an independent insurance agency. He has helped families and individuals preserve, protect, and pass on a legacy since 1986. His mission is helping hard working seniors keep more of what they have worked a lifetime to save.
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