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What You Always Suspected About Life Insurance Fees, Is It True?
Has your financial advisor ever recomended you use life insurance as a savings or investment tool to help you accumulate wealth for your future goals? Prehaps you have wondered, is this a cost prohibitive strategy? After all how much of that money is really going to pay for that large death benefit and how much really goes back to you?

Surly all of these fees and charges do add up at the end of the day but there are many things to consider if you want to find accurate answers to these questions. The first thing you have to understand when considering life insurance as an investment tool is there are many ways to structure a life insurance policy. The most common way the typical life insurance agent goes about setting up your plan is to first determine how much life insurance you need. Then he or she tries to calculate, what is the largest amount of insurance they can give you for the smallest amount of money out of your pocket?

When a life insurance policy is structured using that method a good portion of your premium dollars ends up going back to the life insurance company in fees and insurance charges. You will most likely be disappointed in the growth of your cash value.

On the other hand there is an alternative way to structure a life insurance plan that tends to go against the conventional wisdom of trying to get as much death benefit "bang for your buck" as possible. In this alternative scenario the agent or advisor structures the plan to give you the least amount of death benefit that the IRS requires so that you can stuff your plan with the highest allowable amount of cash that the law permits. Why would anyone want less death benefit you ask? Because the lower the death benefit in relation to your premium the less you pay in insurance charges and the more cost effective your plan becomes.

But you are probably wondering why go through all of that trouble to calculate the correct proportions? How does that benefit you? Well, using a properly structured life insurance contract allows you to enjoy certain tax-benefits that are difficult to mimic in other investments. For example not only will the money you put in your life insurance plan grow tax-deferred but if you do this correctly often times you can access this money tax-free.

Even with the added cost of insurance that you would pay inside a life insurance plan vs. another type of investment vehicle in many instances the tax-breaks alone can more than make up for the added cost.

But let's look at those added fees for a moment. If your contract is put together properly as mentioned above, it most often works out that your costs are about 1% to 1.5% over the life of the contract. Is this cost prohibitive?

Well, where would you put the money if you did not use a life insurance contract? How can you really know if you are getting a fair value unless you make an accurate comparison to your other choices?

If you are like most people your first choice would probably be investing in some sort of a mutual fund. But what kind of fees does the average mutual fund charge? According to the Chicago Tribune, Feb. 26th 2006 "The industry average for mutual fund expense ratios or annual costs is 1.3%" So the cost to invest in a mutual fund is about the same as the insurance contract. But what do you get for your 1.3% in a mutual fund? Advice, period. What do you get for your 1.5% in