Life insurance, at best, can be understood as a contract between the insurance company, the insured person, and the policy holder, that entitles the beneficiary to an amount of death benefit based on the premium paid by the policy owner. Generally, the insured and the policy owner are one and the same. In certain cases, the policy owner turns out to be the beneficiary. Hence, life insurance is a contract between 3 parties. Generally, life insurance policies can be classified into 2 categories―term life insurance and whole life insurance. Again, term life insurance can be classified on the basis of the existence or the absence of a load.
Term Life Insurance
In case of term life insurance, the policy owner is expected to pay a monthly premium. In return, the insurance company guarantees to pay a certain sum of money to the beneficiary, only if the insured person dies during the term of the policy. In other words, the beneficiary will not receive any compensation if the insured person dies after the term of the policy or manages to outlive the policy. Moreover, a term life insurance policy does not have a savings component. It only provides a predetermined amount of money that is stated in the insurance contract as the ‘death benefit.’ Whole life insurance policies have a higher premium requirement as compared, since they guarantee a death benefit that has a savings component, regardless of term constraints. The monthly premium insurance policies can further be reduced by opting for a no load or a low-load term life insurance policy.
How Does a No Load Term Life Insurance Work?
A no load term life insurance policy or a low-load life policy does not require the policy holder to pay an annual fee. The annual fee is often charged by the insurance companies for advertising and for compensating the agent for selling life insurance policies. The amount of money, that is charged as annual fee, can vary between $10 and $100. Generally, the monthly premium that is paid by a person includes the annual fee. Hence, the premium is calculated as:
Annual fee + Premium per unit that varies with age x Number of units denominated in 1000s
A term life insurance policy eliminates this annual fee. The insurance agent does not get paid by the company in the form of commissions. Hence, a policy owner would be required to pay the following amount as monthly premium:
Premium per unit that varies with age x Number of units denominated in 1000s
Considering that the insurance agent is not paid by the company, it’s the client’s responsibility to compensate him for the services rendered. Despite having to pay the fee directly to the agent, the client benefits, since the amount of annual fee can be used towards augmenting the amount of death benefit.
No load term life insurance policies can be purchased from advisers, often known as fee only advisers. In most states, the professional/advisers are expected to be licensed in order to market policies to clients. A few companies also sell the policies directly to clients.