Q - Dear Bob,
What do you think about guaranteed life insurance?
A – I will answer with an illustration. A commercial for a Guaranteed Life product starts with a lady going through her mail. She had just lost her mother. Her friend visits and asks how she is doing. She finds the death benefit from her mom's guaranteed life insurance in the mail and says that she is fine. Her mom had guaranteed life insurance from Colonial Penn.
The marketing pitch is that anyone can get life insurance through this product, regardless of their health. They can offer this type of coverage because the policy has a two-year non-accidental death exclusion. In other words, the policy will not pay the death benefit if the insured dies in the first two years from a health-related condition.
Is this a good deal?
I will not make the blanket statement and say it isn't a good deal for everyone, as the marketing suggests. It could be a great deal for someone close to a terminal state, not insurable, and wanted to bet on surviving for two years.
Let's look at where this isn't a good deal at all.
A 60-year-old male could get $7,456 worth of life insurance for $79.60 a month in this guaranteed program. If the 60-year-old were in good health, he could get $50,000 of life insurance for a guaranteed rate of $48.24 a month for 20 years through another insurance company.
Further, he could take the difference between the $79.64 premium from Colonial Penn for the guaranteed coverage, and the $48.24 a month premium for the other coverage, and save it for 20 years. At the end of the 20 years, his $50,000 guaranteed policy would go away. However, if he would have saved the difference of $31.40 a month for 20 years, he would have saved $7,526, which is more than the $7,456 in the guaranteed program.
Moral of the story?
The end of the commercial has the visiting friend commenting, "Maybe I should get some of that insurance. I could use some additional insurance."
Just because the marketing makes it look like a good idea, doesn't make it a good idea. Always check your options. The commercial should have stressed that guaranteed life insurance is an excellent deal for someone who cannot get traditional life insurance coverage. However, that might not be the best marketing message.
Here is a link for a video on our YouTube channel with more information on this topic (LINK)