Little Benefit in Kids’ Life Insurance
If you have small children, chances are you’ve received a pitch from Globe Life & Accident Co. of Oklahoma City. The 43-year-old insurer sells what it calls the “Young American Plan,” life insurance for healthy people up to age 25.
The pitch hits all the right buttons. A few choice phrases: “Make their future secure” and “Start an estate for them.”
It’s easy to forget that the chief purpose of life insurance is to provide for dependents. Children don’t need life insurance.
Globe isn’t the only insurance company selling policies for kids. Nonetheless, its offer illustrates how consumers are often at a disadvantage when trying to assess the worth of insurance policies sold through the mail.
The offer is hard to evaluate. The six-page letter provides few details. We’re told the annual premium for a $5,000 policy is $20. At age 26, the premium leaps to $75 a year because the policy builds “cash values.”
We called a toll-free number provided in the solicitation for more details. A Globe representative told us that we could obtain a copy of the policy only if we applied for insurance and paid for it. If we didn’t like the policy, we could cancel it and get a refund.
State regulations taking effect in November will require insurers to disclose important details in mail solicitations to Californians. Insurers won’t have to provide a policy, though.
The Globe representative did offer to answer our questions. Here’s what we learned.
The policy up to age 25 is a term life policy. This means that if you let the policy lapse, it is canceled and you receive nothing. Those who cancel their policies after age 27 will receive a portion of the premium paid after age 26. But don’t get excited. The amount is small.
The cash value at age 27 is $10, though $150 in premiums has been paid. The cash value rises to $724 at age 46 after $1,500 in premiums has been paid.
The Globe representative told us that cash value will never equal or exceed total premiums paid. That’s stingier than the typical whole life policy. A representative from the National Insurance Consumer Organization told us that people who hang on to whole life policies usually get back at least what they have paid in.
The Globe representative couldn’t tell us how many people collect on the policy. Chances are few people do. On average, half of all term life insurance policies lapse after 10 years, NICO said.
Globe says it has sold millions of these policies, probably because parents figured that at $20 a year, they had little to lose. There is also very little to gain.
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Check is in the mail: People from as far away as South Carolina are receiving overnight letters from the California Marketing Assn. of Riverside, saying a cash bonus of $2,500 awaits them.
The letters say people have been selected to receive a cash award based on “an entry form sent in last September.” To get the cash award, people are told to send California Marketing $78.50 to cover “overnight express, insurance and handling fees.”
We called California Marketing to find out more about the offer, but our call wasn’t returned. The Better Business Bureau in Cypress reports that it has received nearly 70 inquiries about the offer from people all over the country, indicating dozens of letters have been sent out.
According to the Better Business Bureau, some people who accepted the offer are sorry they did. One person told the bureau that California Marketing did not send the bonus check and has not responded to letters and telephone calls.
Postal authorities we contacted were unaware of California Marketing Assn. A spokeswoman for the U.S. Postal Inspection Service said that in most cases, it is illegal to conduct lotteries through the mail. The spokeswoman said consumers should be cautious when asked to pay a fee in order to receive cash awards or prizes.
