Understanding Life Insurance - Part 2

The new market-driven life insurance products, consumerism, technology, the economy, and regulatory authorities have destroyed the "not-an-investment" myth forever by mandating transparency in products. As a result of the development of universal life and the SEC rules that regulate variable and variable universal life, products can be divided into their component parts.

One part is the amount of the insurance company's money that is at risk in a life insurance policy. That part we will call life insurance, or term life insurance. The second part is policy owner money, called variously cash value, surrender value, or account value. What this means to you, the consumer, is that now, in the newer products, you will be able to identify and quantify the expenses, the cost of the life insurance (amount at risk or term life insurance), and the investment capital and the return on that capital in a life insurance policy. It allows you and your advisors to determine the acceptability of each of the parts of the product to determine if it will serve your purposes. This makes understanding life insurance much easier.

And now a word about your advisor. Yes, your chosen life insurance intermediary who helps you buy and manage your life insurance products over a lifetime may have a conflict of interest. A fee-based intermediary needs to keep you paying, and a commission-based intermediary wants to keep you buying and owning your life insurance product. Choose an advisor who has a good reputation, who has experience, and who expects and appreciates a long-term relationship with you. Well-informed advisors with integrity are motivated to give you advice that stands the test of time and products that serve your needs efficiently. They know that this is how they will keep your business no matter how they are compensated.