Free accidental health insurance = Free advertising for insurer

Everyone gets these kinds of annoying offers all the time, so let us dissect one of them:

Dear xxxx,

Bank of America will pay for you to receive $1,000* of Accidental Death Insurance for one full year at no cost to you………

Realizing that $1,000* may not enough…. bank is happy to make available to you an insurance underwritten by Monumental Life Insurance Company of Cedar Rapids, Iowa.

Vice President of North America

This is one of the oldest tricks in the game. Give something free, so you don’t have to call what you are doing advertising. But it is advertising nevertheless, if what you are giving away is of so low a value! How low is the value of this free offer? Let us do some math:

As per their own letter – $10,000 of coverage costs $1.24 per month, and $100,000 costs $12.40 per month. The relationship being linear, we can deduce that $1,000 of coverage costs $0.124 per month – which is a whopping $1.488 for the entire year. Really, you are shelling out a buck fifty for me, and reminding me of my mortality. Thanks.

That $1.50 is WAY lower than the customer acquisition cost that an insurance company is paying, if considered in competition with other forms of pure advertising – print/radio/TV/referral etc. And the best part is, this is all positioned as a free offer, not as advertising. Makes full economics sense to me, even though it is REALLY annoying.