Due to the potential conflict of interest involved with commissions, there is little movement towards no load/low load policies, which rewards agents with a standard fee not a commission.
However, only a properly licensed fee-based planner can retain such a fee. Only some states have a separate license, which allows life insurance advisers or other financial advisers (i.e., anyone that sells life insurance) to charge a fee for their service.
Please visit your state’s Department of Insurance website to see if your state offers such a license. In states that do not, it is a grey area.
For example, California has a licenses called the “Life and Disability Analyst”, which is discussed in California Insurance Code Section 1831-1849 and can be found on their website.
This license was first introduced into the insurance code in 1984.
It is the only section of the California Insurance Code that allows an adviser to charge a fee for the analysis of life and disability insurance policies. However, there are a few exceptions.
Exemptions to California Insurance Code Sections 1831-1849 0 – Life Analyst – charging a fee:
· Active members of the State Bar of California
· Any person who has passed all the qualifying exams necessary to become an associate of the Society of Actuaries
· An officer or employee of any bank or trust company who receives no compensation from sources other than the bank or trust company for activities connected with his employment, which would otherwise subject him to this chapter
· An investment adviser, as defined in Section 25009 of the Corporations Code, when acting in that capacity
· Complex exception – see the code
The code is very clear that when you receive any fee from a client, you are strictly prohibited from receiving any commission from that same client.
Currently, there is widespread abuse (mostly unintentional) of this section of the code; they are planners who collect a fee from their client as well as commissions on the insurance policy.
If an adviser wishes to charge you a fee, make sure that they are properly licensed to do this by checking with your state’s Department of Insurance. And, if there is no such license, determine their qualification as best you can. This could be a challenge is states where no such license exists.
Fee-only life insurance planners will also be the advisers who will offer you no-load/low-load insurance policies. Theses policies pay no commissions; therefore, advisers charge a fee and can be more objective. Some of these policies do a pay a minimal marketing fee.