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.
v.intr. from the policy's cash value; in a low-load policy, there is no commission, which offers buyers a number of clear advantages.
A HEAD START
In a low-load policy, "there is less overhead being taken out of your dollar," says Robert Hunter Robert Hunter may refer to:
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-
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.
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:
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.
3. 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.
THE CPA'S ROLE
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, $2,000. 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. carriers) 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: www.veritas.ameritas.com Charles Schwab & Co. Phone:800-542 LIFE (800-542-5433) Web site: www.schwab.com/insurance 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: www.fee-for-service.com carriers) USAA 9800 Fredericksburg Road San Antonio, Texas 78288 Phone: 800-531-4440