Colonial Penn Life Insurance: Is It Rated Well?

Colonial Penn Life Insurance is a well-known life insurance company that has been in business since 1957. The company specializes in offering affordable life insurance options, particularly for seniors, and is currently serving over 810,000 customers. While Colonial Penn has received positive ratings from agencies like AM Best, it has also faced criticism and a high volume of consumer complaints regarding its pricing structure, misleading advertising, and low coverage limits. This article will explore how Colonial Penn Life Insurance is rated by different sources and provide an overview of the company's offerings, customer feedback, and areas of concern.

Colonial Penn's high volume of consumer complaints

Colonial Penn Life Insurance has received a high volume of consumer complaints relative to its size. According to a NerdWallet analysis of data from the National Association of Insurance Commissioners, the company has received far more than the expected number of complaints over three years.

The Better Business Bureau (BBB) has given Colonial Penn Life Insurance a customer review score of 1.16/5, indicating an abnormally high number of complaints for a business. The BBB is a nonprofit organisation that helps people find legitimate businesses.

The National Association of Insurance Commissioners (NAIC) keeps track of customer complaints and rates companies based on a Company Complaint Index. The average company hits 1.00 on the index, but Colonial Penn received a rating of 2.68 in 2023, indicating that it received 2.68 times more complaints than the national average. This is an improvement from its 2022 rating of 7.57.

The company's misleading advertising

Colonial Penn's advertising has been described as misleading and deceptive. The company's $9.95 plan, which is advertised heavily, has been criticised for not providing as much coverage as expected. The plan uses a “unit” system, where each unit provides a certain amount of coverage, which varies based on age and gender. This has been described as confusing.

The company's TV ad also does not tell customers that if they die within the first two years of coverage, the beneficiary will only receive the full benefit if the death is ruled an accident. The ad targets people aged 50-85 with pre-existing health conditions, telling them they “cannot be turned down for any health reason". However, the ad does not disclose that the definition of "accidental death" does not include death resulting from "bodily or mental illness or disease, infection, suicide, medical or surgical treatment, voluntary use of any controlled substance unless prescribed by a physician, or any act of war".

Colonial Penn has also been criticised for overpricing. One source states that "depending on age, a 'unit' costing $9.95 per month can result in coverage from $1,786 at age 50 for men or $2,083 for women, or $560 at age 75 for men or $792 for women". The source goes on to say that “other brands do not have this exclusion”. Another source states that Colonial Penn's costs can add up, especially with their unique unit pricing system".

The unit system and its confusing nature

Colonial Penn's unit system is a unique pricing structure that can be confusing for customers. Each unit of coverage costs $9.95, and the number of units one can purchase varies from 1 to 25, depending on the individual's age. While the price per unit is fixed, the amount of coverage each unit provides depends on the buyer's age and gender. This means that the coverage amount is locked in and doesn't fluctuate over time.

The confusing nature of the unit system lies in the fact that it is challenging for potential customers to understand how much coverage they are actually getting for their money. The coverage amount per unit varies, and it is not a straightforward calculation based solely on the number of units purchased. This variability can make it difficult for individuals to determine if they are getting sufficient coverage for their needs.

Additionally, Colonial Penn's advertising has been criticised for being misleading regarding the $9.95 plan. While the plan is advertised as offering coverage for as little as $9.95 per month, this price only buys one unit, which provides very limited coverage. The amount of coverage per unit is significantly lower than what one might expect, given that the price per unit remains the same regardless of age and gender.

Furthermore, the unit system can make it challenging for individuals to compare Colonial Penn's rates with those of other insurance providers. The calculation of the total cost and coverage amount involves multiple variables, including age, gender, and the number of units purchased. This complexity may deter potential customers who are seeking simplicity and transparency in their insurance options.

In conclusion, while the unit system offers flexibility in terms of the number of units one can purchase, it falls short in providing clarity and ease of understanding. The variability in coverage amounts per unit, misleading advertising, and the challenge of comparing rates with other providers contribute to the confusing nature of Colonial Penn's unit system.

The two-year waiting period for full benefits

Colonial Penn's life insurance policies have a two-year waiting period before full benefits are available. This means that if the insured person passes away within the first two years of taking out a policy, their beneficiaries will not receive the full benefit amount. Instead, they will only be refunded the premiums paid, plus a small amount of interest. This waiting period is due to the guaranteed acceptance nature of the policy, which does not require applicants to undergo a medical exam or answer health questions.

The two-year waiting period is an important consideration when purchasing Colonial Penn life insurance. During this period, the full life insurance death benefit will not be paid out if the insured person dies. This means that beneficiaries will only receive a graded death benefit, which includes the premiums paid plus interest. This waiting period is in place because Colonial Penn accepts applicants without considering their health, which increases the company's risk.

The two-year waiting period is standard for Colonial Penn's guaranteed acceptance life insurance policy. This policy is available to individuals aged 50 to 85 and offers guaranteed coverage regardless of health status. While the waiting period may be a drawback, the policy has several benefits, such as no medical exam or health questions, a locked-in premium rate, flexible payment options, and the assurance that coverage cannot be cancelled as long as premiums are paid.

Colonial Penn also offers graded benefit life insurance, which has a similar waiting period. This policy is also available to individuals aged 50 to 85 and does not require a medical exam. However, it does include health questions during the application process. The full death benefit is not payable during the first few years, and beneficiaries will only receive a graded death benefit.

It is important to carefully review the terms and conditions of any life insurance policy before purchasing it. The two-year waiting period for full benefits is a significant condition that may impact the decision to choose Colonial Penn life insurance.

The relatively low coverage amounts

Colonial Penn's life insurance coverage is based on a unit system, where each unit costs $9.95 per month. The number of units purchased determines the total monthly premium, which is calculated by multiplying $9.95 by the number of units. While this starting cost is low, the death benefit coverage amount per unit is very small and depends on the age and gender of the insured. For example, a 66-year-old male would receive only $846 in life insurance from a single unit, while a 50-year-old male would get $1,669 in coverage. The older the insured, the lower the coverage per unit.

The low coverage amounts and confusing unit system have led to numerous consumer complaints about Colonial Penn's insurance plans. The company has received far more complaints than expected for a company of its size, according to a NerdWallet analysis of data from the National Association of Insurance Commissioners. Therefore, while the starting cost of $9.95 per unit may seem appealing, the low coverage amounts and potential for higher premiums make it crucial for individuals to carefully consider their needs and compare Colonial Penn's plans with other providers before making a decision.

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