'Low-Load' Life Insurance

You already know "no-load" mutual funds spare you the high cost of broker commissions. What you may not know is that "no-load" life insurance can do the same. But before you consider life insurance at any cost, you should first determine whether owning it at all makes sense for you -- it doesn't for everyone.

Many people have asked me, "How do I go about determining if I need any life insurance?" Assuming it is not a business situation, here are five reasons to consider buying life insurance:

1. To replace income if a spouse dies. Many couples say they won't need to do this because both have successful careers. Others say they would like to replace all or some of the income. It is obviously a very personal decision.

2. So beneficiaries can cover your outstanding debt -- including mortgage and car loans.

3. To pay kids' educational expenses.

4. To pay estate taxes.

5. To pay for the costs associated with dying.

These are the most obvious reasons. The amount of coverage you buy is commensurate with the number of financial obligations and responsibilities you stand to leave behind. So, if you're married, you'll have a lot to discuss. If you're single, you may need very little life insurance or perhaps none at all.

The next question people ask is: "Should I get term insurance or the kind that has a cash value?"

Term insurance should meet your needs in most cases. It's the least expensive since it carries no investment or cash value outside of death benefits and only covers you for a specific period of time. You can adjust the amount of coverage to suit your changing financial obligations -- perhaps reducing or eliminating coverage as your children reach maturity.

However, if you know you will need life insurance coverage your entire life -- so that beneficiaries can use the proceeds to cover estate taxes or as income after you are gone -- you may need to buy a permanent or "whole life" policy, since the cost of renewing term insurance becomes prohibitive as you age. These policies carry a cash value. But because this type of insurance covers you for your entire life, premiums are more expensive than for most term policies.

Once you have decided how much you need and what kind, the next question is how do you go about buying it? That's where the load comes in.

Traditional "load" policies carry expenses that are built into premiums and used to cover everything from agent commissions and bonuses to advertising and marketing costs. These expenses can be exorbitant. In fact, it is not uncommon for loads to consume most or all of the money you pay in premiums well into the second year of the policy -- an important factor when buying cash value policies.

But there is a little known way to get around paying high expenses. You can buy "no-load" or more appropriately "low-load" life insurance. A low-load policy carries fewer expenses, which can translate into lower premiums. When buying whole life, lower expenses means a higher percentage of your premium goes to work for you right away -- so that you can begin to build cash value in the first year. The only problem with low-load insurance is that few people are aware the option is available. And many who do know tend to believe it's just "too good to be true." It's not.

Low-load policies are not designed to replace life insurance agents or trusted advisors. They are designed to change the way an agent is compensated. To accommodate these changes, a new kind of agent/advisor has emerged on the scene. These advisors differ from the traditional agent in that they don't work on commissions or take compensation from insurance companies. In this way, they represent your interests only and charge you a fee. This fee-only advisor is an insurance professional. In many states there is a specific license required to give life insurance advice for a fee. In New York and Connecticut, it is called a Certified Insurance Consultants License.

Buying from a fee-only advisor is one way to purchase low-load life insurance. To find an advisor or learn more about this kind of insurance, you can contact a company called Fee For Service. They are owned by GE Capital Services and are located in Tampa, Fla. They have developed a Fee Insurance Alliance with a group of independent planners. Fee For Service has been doing this since 1984 and were pioneers of this concept. Their phone number is 1-800-808-5810.

Another way to buy low-load insurance is directly from companies that offer it. Here are three:

USAA Life Insurance Co.: 800-531-8000

Ameritas Life Insurance Co.: 800-745-1112

Southland Life: 800-872-7542

Back in the '70s, I used to say, "The life insurance industry is the only industry in America totally unimpeded by progress!" Then, inflation, high interest rates and a host of other ills forced the industry to create new products like universal and variable life. Some companies even went under. Now they are experiencing slow deterioration of their agency system. With the advent of the fee-only advisor, the transformation continues.