Life Insurance And The Hidden Fees
When you buy your life insurance, additional fees and charges come along with the actual premium and the cash value of your policy. These extra fees and charges that are added on to your premium is commonly known as “load”. There are two types of load. Some charges and commissions are lower than others so these are called “low load”, on the other hand some fees, commissions and other charges may be found to be expensive and are therefore referred to as “high load”. So before you decide on purchasing a life insurance policy, it is important to find out more about these fees and where they go so that you can understand better what it is you are paying for.
Before we start, you should first find out how insurance agents, brokers and other investment professionals earn their money, and this is through commission, fee-based and fee plus commission. A commission is an amount of money paid to the agent for the insurance policy sale. This sale is usually taken from the premium by a percentage. Some agents and brokers charge a flat fee as a service charge and this is known as “fee based”. And a fee plus commission which is taken when you pay a fee to meet with an investment professional and a commission if you purchase a product they’ve suggested.
The agent’s commission, though, is just a part of the load. There are some other fees and charges which are added on to your premium and cash value. These are administration fees, mortality and expense risk charges, cost of insurance, surrender charges, monthly per thousand charge and fund management fees. An administration fee is an amount deducted from the policy to pay for the marketing, accounting and record-keeping expenses that come with your policy. These administration fees are usually deducted from your policy value once a month. Mortality and expense risk charges are compensation on the insurance company for the risk it may possibly pay off. The cost of insurance or the actual cost of insurance protection is based on the insured person’s age, gender, health and the amount of the death benefit. Surrender charges are amounts deducted from cash value if you cash in your policy earlier than the surrender charge period is in effect. This amount varies between different insurance companies. Monthly per thousand charge is a monthly fee based on the insured person’s age, gender and underwriting classification and the fund management fees, these are paid to fund managers or investment managers for selecting investments, and doing all the paperwork needed.
It is always a good idea to find out the breakdown of what you are paying for so that you get to understand the whole idea and value of the life insurance you are getting your money’s worth for.