Life
Insurance — Get More For Less
Life insurance. If it means nothing more to you than death,
taxes, and high premiums, you might be missing the good news. It’s called
"low-load insurance."
With low-load insurance, instead of paying the agent a
commission for a product sold, you compensate an advisor with a fee for a service
provided. A fee-only advisor is a licensed financial professional who offers individual
consumers and businesses an alternative means of securing life insurance as a part of
their financial planning. The minimum coverage amount is generally $100,000 and can cover
multi-million dollar policies, making this is a viable life-insurance alternative for most
purchasers.
Low-load policies are underwritten by several nationally
known, A+-rated insurance companies. The underwriting process is no different from
traditional policies because all insurance companies use the same mortality tables. Thus,
the base cost to insure an individual or business owner is identical for all companies.
The difference in total cost from policy to policy is directly related to other expenses
that the particular carrier incurs.
The reduction in costs for low-load policies is achieved by
eliminating insurance-agent expenses such as commissions, renewals, bonuses, fringe
benefits, sales contests, and advertising, most of which are not applicable to low-load
life insurance companies. In effect, you’re buying life insurance in the wholesale
rather than the retail market, with an immediate savings of one-third or more of the money
you might otherwise have spent buying the policy from a commissioned agent. As time goes
by, you will continue to save.
A traditional life insurance policy has little or no cash
value in the early years. Traditional insurance commissions range from 75 percent to 150
percent of your first-year premium, 15 percent over the next four or five years, then
perhaps five percent for the next five annual premiums, and so on. Even after 20 to 25
years, expenses such as commissions and renewals will continue to drain your insurance
dollars.
With low-load insurance, the money you pay in premiums goes
directly toward insurance coverage, not expenses. Thus you immediately begin to build cash
value that, even in the first year, you can borrow against or walk away with if you cancel
the policy. Immediate cash value also benefits the insurance company because, in the event
of the policyholder’s death, the company is only on the line for the difference
between the death benefit and the amount of cash that has built up in the policy.
Life insurance can be an arcane commodity and generally has
been the most inefficient part of any financial plan. A low-load insurance policy can
increase the value of your nest egg and lower the costs at the same time.
John H. Chason III is a member of the board of directors of Tallahassee-based Wealth
Management Corporation, a registered investment advisory firm (email: jchasonIII@aol.com).
September/October 1999 -- Florida Business Insight, PO Box 784,
Tallahassee, Fla. 32302
(850)224-7173, insight@aif.com
