Fee-based advisors examine the merits of low-load variable universal life.

For fee-based financial advisors, the idea of suggesting a variable universal life insurance policy to a client is probably about as appealing as an Internet stock.

Chances are, if there's a client with a need for life insurance and some extra money to invest, the advisor will recommend term insurance and a conventional investment vehicle instead of a variable life product laden with hidden fees and commissions and surrender charges. But that hasn't stopped a few companies from at least trying to spruce up the image of variable universal life in the eyes of the fee-centric financial planner through low-load products.

Ameritas, for example, added variable universal life to its line of low- and no-load products in 1996. TIAA-CREF, meanwhile, introduced a line of low-load variable universal life products in March.

"There is an increasing demand for it," says Patty Reiners, an official at Ameritas. "There is a movement towards fee for advice, and low-load products work very well with that."

If there is indeed a movement towards low-load insurance, however, it's hard to detect because the overall variable life insurance market has been slumping in the face of a weak equities market. The slump followed a period of explosive growth that coincided with a euphoric bull market.

From 1998 to 2000, when equity values skyrocketed, variable life's share of the life insurance market rose from 28% to 36%, overtaking universal and whole life as the largest share of life insurance premiums. Since then, however, variable life has skidded to a 24% market share in 2002, compared with 28% for universal and 26% for whole life. Variable, in fact, is just slightly outpacing term insurance sales, which comprise 22% of the market.

Another reason the climate for variable life sales has been dismal is that many of the policies written during the 1990s included steep surrender charges. That has put many policyholders in the no-win position of either having to stick with a potentially underfunded policy or paying a high penalty to cancel the contract. It's a trap not too many advisors want their clients to fall into. "They don't have much latitude to exit a bad policy," says Joseph Maczuga, president of the Fee Planners Network, an industry-sponsored group that acts as a resource for advisors on matters related to fee-based life insurance.

That is why Maczuga and some insurance companies see this as an appropriate time to tout low-load variable universal life insurance, which typically carries no surrender charges and lower first-year premiums. Unlike commissioned policies, low-load variable universal life typically includes a full disclosure of fees and costs and provides the policyholder with cash value in the first year.

The flexibility afforded by the lack of surrender charges and the full disclosure of fees are keys when it comes to utilizing variable universal life in a fee-only practice, Maczuga says. Products with heavy commissions, he notes, simply don't mesh with an advisory practice that fully discloses fees to clients. Advisors are also going to steer clear of surrender charges that could lock their clients into a policy for ten years or more, he notes.

"A lot of advisors are saying we want the full disclosure and control year to year because we know they're playing games with these policies," Maczuga says. "The advisors are looking at fiduciary responsibility, full control and full liquidity. They want to make sure they're not stuck if they need to change."

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