Integrated Risk Managment with others and have decades of track record . Structure of Policy : While there must be a life insurance need to purchase life insurance , life insurance policies have great flexibility in how they are structured . Life insurance sold in a format with lower face value and greater premiums may have lower expenses and may lead to a greater level of cash value .

Since cash values support death benefits over time , simple strategies to increase cash values can dramatically impact death benefits paid and cash values accumulated . Here are some tips on how to increase the potential for more cash value over time :

• Increase premiums above the required amount . Your life insurance policy will pay up more quickly and you can pay a life insurance policy as quickly as seven years without triggering a Modified Endowment Contract ( MEC )— a tax qualification of a life insurance policy whose funding exceeds federal tax law limits . The taxation structure and IRS policy classification permanently change after a life insurance policy morphs to an MEC .

• Excess premiums are generally not subject to the same level of commissions , and

lower commissions usually mean more cash value .

Advantage Insured While quite a bit is written about life insurance compensation , the reality is that the compensation costs paid to life insurance professionals on policies with meaningful premiums are a good deal from an asset accumulation perspective . Compensation is paid in the form of a commission , and the commission is paid based on the premium .

While different companies pay their life insurance professionals differently , the commission on a fully loaded , nondiscounted life insurance policy is about 100 percent of the premium paid . Some companies pay the majority in the first year , while other companies who want to ensure that their insured policy owners are serviced pay over 10 years . Payments generally cease between one and 10 years for companies that pay over time .

Adding to efficiency , the insurance company may retain the compensation of insurance professionals that may leave the industry , which reduces expenses . Additional premiums on policies are compensated at significantly lower commission rates , perhaps only 2.5 percent of the additional premium per year paid .

A Word About Dividends Dividends paid by companies vary depending on how the company determines the dividend rate . While it may seem good to have a greater dividend rate , the reality is that there are no industry standards in how a dividend is computed .

It is important to work with professionals who understand the variables around the opportunity of life insurance .

Conclusion Life insurance is often considered in its most simplistic terms . You die , and your beneficiary gets paid . Yet proper financial planning takes into consideration benefits for multiple unforeseen events .

Leonard C . Wright , CPA / PFS , CFP , CLU , ChFC is a former chair of the CalCPA Personal Financial Planning Committee . You can reach him at wrightplanners @ hotmail . com .

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