No-Load Life Insurance vs. Loaded Life Insurance

All cash value life insurance policies are NOT created equal! If you have your choice between no-load life insurance policy (which is a policy bought directly through an insurance company – no agent involved) versus a loaded life insurance policy (a policy bought through a life insurance agent)…choose the no-load policy. You will save thousands in premiums by purchasing the no-load policy, and your “aggregate net cash value” in a no-load policy will be much larger than a loaded policy (purchased through a life insurance agent).

The biggest problem with loaded life insurance is the commission for a loaded policy must be paid somehow…and it’s paid directly out the policy owner’s cash value. These are very large commissions and someone’s going to pay for it…which is you (unless you purchase a no-load policy)!

Almost everyone needs life insurance. It’s a fatal mistake to not have life insurance, or drop your premium payments for a policy (years later). But what you don’t want to do is make a mistake buying a loaded policy.

First you need to understand the following charges, and how these charges are deducted annually from your policy cash value. These charges are called “mortality & expense” charges (M&E).  You have the following types of charges deducted from your principal & interest (cash value) each year:

a. Premium Taxes (annually)

b. Cost of Insurance (annually)

c. Administrative Charges (annually)

d. Any Misc. Rider Costs (annually)

e. Commissions (Initially charged in the first year, but most insurance companies may deduct commissions from a loaded policy…up to 19 years into the future.)

The policy will earn interest, and then the M&E will be deducted…which will then give you the “net surrender value.”

Example: Principal + Interest – M&E = The Net Surrender Value

In addition, if you take a loan out against the cash value in your policy, you have an additional expense before making withdrawals. This is called the “aggregate loan interest balance.” The interest owed to the insurance company on the “aggregate loan interest balance” (ALIB) must be computed and deducted after the M&E to arrive at the “new surrender value.”

Example: Principal + Interest – M&E – ALIB = The New Surrender Value (Before Withdrawals)

In a traditional no-load policy, the first year M&E is about 4.5%, while the first year M&E for a loaded policy is approximately 80%. So, if you invested a $100,000 in a “loaded policy,” in the first year your “net surrender value” would be approximately $20,000 (not counting interest earned). The “net surrender value” in the first year for a no-load policy would be $95,500 dollars (not counting interest earned). Which would you want?

It’s all about the return on your dollar. If I don’t have money in your account…then it’s very difficult to earn interest on it? So, if you’re going to purchase life insurance…then purchase a no-load policy! There are several companies to choose from, but a good company that I have been familiar with over the years is “Ameritas Life.” Just type in no-load life insurance on your computer and do the research between the cost of insuring yourself annually, and what the net surrender value is each every year (based on their guaranteed interest rate). And make certain the company is rated an “A or B” by Weiss. It’s that simple.

Sincerely,

John Bagwell

The Truth About Financial Products.com

www.thetruthaboutfinancialproducts.com