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Take a load off.

Is low-load life insurance rigth for your client?

When CPAs help clients select life insurance, they should be aware that it's it's  

1. Contraction of it is.

2. Contraction of it has. See Usage Note at its.

it's it is or it has
it's be ~have
 not always necessary to pay an agent's commission as part of the purchase. Just as no-load mutual funds No-load mutual fund

An open-end investment company whose shares are sold without a sales charge. There can be other distribution charges, however, such as Article 12B-1 fees. A true no-load fund has neither a sales charge nor a distribution fee.
 have gained popularity in the securities arena, low-load life insurance is slowly emerging as an option in this market.

With many life insurance policies, the person selling the product takes a commission that is deducted de·duct  
v. de·duct·ed, de·duct·ing, de·ducts
1. To take away (a quantity) from another; subtract.

2. To derive by deduction; deduce.

 from the policy's cash value; in a low-load policy, there is no commission, which offers buyers a number of clear advantages.


In a low-load policy, "there is less overhead being taken out of your dollar," says Robert Hunter Robert Hunter may refer to:

In politics:
  • General Robert Hunter (1664/1666–1734), Lieutenant Governor of Virginia Colony, Governor of New York, New Jersey, Jamaica
  • Robert C. Hunter (born 1944), U.S. judge, North Carolina Court of Appeals
  • Robert E.
, director of insurance at the Consumer Federation of America The Consumer Federation of America (CFA) is a non-profit organization founded in 1968 to advance the consumer interest through research, education and advocacy.

According to CFA's website, its members are approximately 300 consumer-oriented non-profits, which themselves have
. He notes that when a consumer gives an insurance company $100, $10 may go to marketing costs, $10 to expenses and $10 to commissions. "In a no- no-

absence of.

no-effect level, no-observed-effect level
the maximum dose of a poison that can be given over a stated period without producing detectable ill effects.
 or low-load policy, you'd you'd  

1. Contraction of you had.

2. Contraction of you would.

you'd you had or you would
you'd have ~would
 have a 10% advantage right off the bat." While commissions and expenses may eat up a significant portion of premiums in the first and even second years of a policy, low-load policy costs should take a smaller bite.

Preserving the buyer's investment can increase the policy's earning power Earning power

Earnings before interest and taxes (EBIT) divided by total assets.

earning power

1. The earnings that an asset could produce under optimal conditions. For example, AT&T may currently be earning $2.
. "A load can be a significant drain on the policy's cash value in the first years," says John Buckley John Buckley may be:
  • John Buckley (died 1598), English religious leader and martyr Saint John Jones
  • John Buckley (soldier), (1813-1876) British
  • John Buckley (bishop) (born 1939), Irish Catholic religious leader
, director of product management and sales support at USAA USAA United Services Automobile Association
USAA Urban Superintendents Association of America
USAA United States Achievement Academy
USAA United States Arbitration Act of 1925
USAA United States Axemen's Association
USAA United States Air-Table-Hockey Association
, one of the companies that offers these policies. "And with compound interest, more cash value up front affects the long-term Long-term

Three or more years. In the context of accounting, more than 1 year.


1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term.
 value of the investment" Indeed, according to according to
1. As stated or indicated by; on the authority of: according to historians.

2. In keeping with: according to instructions.

 Hunter, in the first year of a policy, as much as 55% of a life insurance policy investment may go to commissions alone, not including other expenses. "After 20 or 30 years, having more of that early investment building tax-free tax-free
Not subject to taxation; tax-exempt.


not needing to have tax paid on it: a tax-free lump sum

Adj. 1.
 can make a tremendous difference."

In addition, Hunter notes that "when you're working with a salaried representative, he or she can tell you what's best without that commission getting in the way" and affecting his or her guidance. That representative is more likely to recommend what you really need, agrees Buckley. "When choosing the low-load option, consider not only the lower cost of the policy but also the value of the advice you get," he says.

Low-load life insurance also can make it possible for consumers to avoid policy surrender charges Surrender Charge

A fee levied on a life insurance policyholder upon cancellation of his or her life insurance policy. The fee is used to cover the costs of keeping the insurance policy on the insurance provider's books.
. These charges, usually commissions and selling expenses, are built into policies' fee structures. Permanent life insurance--such as whole, universal or variable life--is a long-term commitment that assumes premium payments will be made over many years. If policyholders choose to cash in policies before they've made all payments, surrender charges can eat up much of what they have paid in. In fact, during the first years of a policy, those charges can equal the entire investment. The lack of surrender charges offers policyholders and their advisers greater flexibility, says Keith Maurer, president of Fee For Service, a low-load insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual.

An insurer is frequently an insurance company and is also known as an underwriter.
 owned by GE Capital. "Without surrender charges, you're better able to create insurance programs without worrying about what will happen if the policies must be cashed in later."

Flexibility is an advantage when a policy has not lived up to expectations, as well, Since insurance company projections and illustrations may not always accurately predict long-term investment performance, low-load policies offer buyers the chance to switch companies if a policy doesn't perform well without a loss of premiums paid due to surrender charges or other costs.


Cutting costs may not always be the most important factor in a decision, however. Even if a client sidesteps the commission, he or she still will face other expenses that are folded into the policy price. Hunter cautions buyers and their advisers to evaluate all of the fees and expenses in any policy to ensure it really is al good deal. It's also important to examine the insurer's credentials CREDENTIALS, international law. The instruments which authorize and establish a public minister in his character with the state or prince to whom they are addressed. If the state or prince receive the minister, he can be received only in the quality attributed to him in his credentials.  and reliability. According to Hunter, an insurer should have the highest ratings given by companies such as A. M. Best, a leading industry rating service. Finally, avoiding a commission is less of a concern with term insurance, because the load on those policies is already so small that low-load policies offer little benefit (we've focused here on companies that offer term plus other kinds of policies). In fact, some companies outside the low-load market may charge less for term insurance if their sales volumes make lower prices possible.


Despite these drawbacks, this option is a good one for many clients. Why hasn't low-load insurance become more popular? Many consumers rely on their insurance agents to help them untangle the intricacies of insurance, so they are reluctant to strike out on their own, even if it means saving money. Remember that the commission is essentially a payment for the insurance professional's knowledge and service, and may well be worth paying if the CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000.  or the client lacks familiarity with insurance options. CPAs who do understand this investment option, however, are in an excellent position not only to advise clients about their life insurance needs but also to educate them about this cost-cutting option. The chart on page 28 lists some of the major players in the low-load market. The companies may sell the insurance directly, through salaried representatives or through fee-only advisers. Some other companies sell directly to the public, often over the Internet Internet

Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the
 or through toll-free numbers, but they may levy a commission even though no local agent is involved, so be sure to examine fees before picking a company. Choosing the best life insurance product remains a complicated puzzle “Puzzle solving” redirects here. For the concept in Thomas Kuhn's philosophy of science, see normal science.

A puzzle is a problem or enigma that challenges ingenuity.
, but low-load policies are an interesting new element in the equation.

RELATED ARTICLE: Low-Load Life Insurers

These are some of the leading companies in the field of low-cost life insurance.
Name                        Life Insurance products

Ameritas Life               Term, universal and variable universal
Low-Load Division           life; minimum policy amount: $100,000.
                            Survivorship life (also called second
                            to die): $250,000 minimum. No-load
                            annuity; minimum initial contribution,

Charles Schwab & Co.        Term and universal life, $100,000
                            minimum; survivorship life,
                            $250,000 minimum.

Fee For Service, Inc.       Term, individual permanent,
(A GE Capital Financial     survivorship, first to die. Minimum
company, Fee For Service    policy amounts: $250,000 for most
markets the products of     term policies; $100,000 for
a number of insurance       individual policies.

USAA                        Annual renewable term life, minimum
                            policy amount: $50,000. ($25,000 in
                            certain states). Level term, 10 years,
                            $100,000 minimum; 15 to 20 years,
                            $50,000 minimum. Whole life, $10,000
                            minimum. Universal life $25,000 minimum.

Name                        How to Contact

Ameritas Life               5900 O Street
Low-Load Division           Lincoln, Nebraska 68510
                            Phone: 800-552-3553
                            Fax: 713-621-8531
                            Web site:

Charles Schwab & Co.        Phone:800-542 LIFE (800-542-5433)
                            Web site:

Fee For Service, Inc.       5401 West Kennedy Boulevard, Suite 560
(A GE Capital Financial     Tampa, Florida 33609
company, Fee For Service    Phone: 800-874-5662, ext. 3201
markets the products of     Fax: 813-288-0817
a number of insurance       Web site:

USAA                        9800 Fredericksburg Road
                            San Antonio, Texas 78288
                            Phone: 800-531-4440
COPYRIGHT 1998 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1998, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:low-load life insurance
Author:Dennis, Anita
Publication:Journal of Accountancy
Date:Jul 1, 1998
Previous Article:Seven steps to judging life insurance.
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