No Load Life Insurance: A Bigger Bang For Your Buck

Those wide-smiling insurance salespeople are holding a little secret from you: Most of the premiums you pay in the early years of your life policy go either into their pockets as commission or for their company's administrative overhead. Trouble is, that holds back growth of the policy's cash value during its initial five years or so. What you've paid in is more than the policy is worth if you need to borrow against or redeem it.

That's why a new type of life insurance is catching on--no-load policies, which don't charge agents' commissions. You eliminate the middleman by contacting the insurer directly via an 800 number. Since this setup also requires less overhead, the net result usually is lower premiums and quicker buildup of cash value (table).

SMALL AND SECURE. No-load, which is widely practiced among mutual funds, poses a big challenge to traditional insurance-sales philosophy. "The old thinking is that insurance has to be sold, not bought--that a customer needs to be convinced to buy a policy," says Don Reiser, founder of three-year-old Veritas Corp., a Houston-based leader in the no-load field.

The no-load concept is anathema to major insurers and their vast sales forces. The majors contend that their agents offer better, more personalized financial planning than an operator at the end of an 800 line. And they argue that their larger asset bases and high-powered investment managers will bring policyholders fatter and safer returns over time.

Except for San Antonio-based auto-insurance giant United Services Automobile Assn., the nine other no-load providers tend to be small. Still, almost all of them carry top ratings from A. M. Best and other agencies--and most have been in business for decades. So, odds are they will be around in years to come.

NO MYSTERY. Insurance advisers can guide you to the best no-load policy for your needs. These independent financial planners charge a one-shot fee ranging from $250 to $1,000, depending on the size and complexity of your coverage demands. One such outfit, Tampa's Fee for Service, recommends Miami-based no-load insurer John Alden for those seeking the lowest rates. "They're particularly good for male smokers," says Fee for Service chief Keith Maurer. One downside: John Alden's cash buildup is slower because of the low premiums. For referrals to these advisers, call the Life Insurance Advisers Assn. (800 521-4578).

Insurance is an arcane commodity. With no-load, you at least know one thing--that your premiums aren't going into an agent's pocket.

                    Cash surrender value*
         Year    No-load     Commission
                  policy        policy
                Premium:      Premium:
                $5,825"/yr.    $7,285"/yr.
      1           $5,844          $0
      2           11,718       4,478
      3           17,676      11,504
      4           24,097      18,964
      5           31,015      26,880
      6           38,470      36,090
      7           46,503      45,694
      * $500,000 universal life policy for 40-year-old male nonsmoker, based on 7.5% 
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