7 FEES to Watch Out for in Cash Value Life Insurance (Especially in IULs)
Understanding Cash Value Life Insurance and IULs
Cash value life insurance is a special kind of insurance, also known as permanent life insurance.
This means it can last your whole life and offer a death benefit to your loved ones.
But there’s more to it. Over time, this insurance can also grow money for you.
Indexed Universal Life Insurance (IUL)
One type of this insurance is called Indexed Universal Life Insurance, or IUL. With an IUL, your money can grow based on a stock market index. The best part? You get some of the benefits from the market without the big risk of losing money.
Some people like IULs because they can help build savings over time. They’re not a get-rich-quick plan. Instead, they offer a steady and reliable way to grow your money. This way, you can enjoy some security now and leave a legacy for your loved ones. IULs can be part of your financial safety net, helping you feel more secure about the future.
By understanding these options, you can make smarter choices about protecting and growing your finances over time.
While some agents may present IULs like investments, they are not investment products — they are life insurance policies with unique savings features.
Fee #1: Administration Charges
Administration charges are small fees that help the insurance company manage your policy.
Think of them like the little extra fees you see on your phone bill — maybe just a few bucks each month, but they add up over time. You may not notice them at first, but over years, these charges can quietly eat into your cash value.
🧠 What You Can Do:
Ask your advisor to explain every fee that comes with your policy
Check if there are any monthly or annual charges that don’t show up clearly
Make sure you’re not paying for extras you don’t need
📌 Why It Matters: Even small fees can reduce how fast your savings grow. When you understand what you’re paying for, you’re in control — and you keep more money working for you.
Just like you’d double-check a restaurant bill, it’s smart to review your life insurance costs.
💬 Tip: If something isn’t clear, ask. You have a right to know where your money is going — and to make sure it’s helping you, not just the insurance company.
Fee #2: Cost of Insurance Fees
This is the fee you pay to keep your life insurance coverage active — kind of like paying rent every month, but for protection instead of a place to live.
As you get older, this fee usually goes up. That’s because the risk of something happening to you grows with age, and the insurance company charges more to cover that risk.
🧠 How to Keep It Low:
Start younger if you can – younger people usually pay less because the risk is lower
Use smart design – we can keep the death benefit low and focus more of your money on building savings
Review your plan over time – checking in helps you adjust before costs rise too much
📌 Why it matters: If the policy isn’t designed the right way, your monthly cost could get too high down the road — and that can eat away at the cash you’re trying to grow.
✅ Pro Tip:
Ask your advisor how the cost of insurance changes over time — and what the plan does to keep those costs in check. A well-designed policy will help keep your coverage affordable and flexible as your life changes.
Fee #3: Surrender Charges
Surrender charges are fees you pay if you cancel or stop your life insurance policy too early. Think of it like getting a penalty for quitting a game before it’s finished — you lose some points (or money) for leaving too soon.
These fees are usually higher in the first few years of the policy and slowly go down over time. If you take out too much money or close the policy early, you could lose part of your cash value.
🧠 Plan Ahead:
If you think you might need access to your money soon, it’s smart to talk to an expert first. They can help you build a plan that avoids big penalties — and still gives you flexibility later on.
🔄 What about 1035 Exchanges?
If you’re switching from one life insurance policy to another, there’s something called a 1035 exchange.
This lets you move your money from one policy into a new one — without paying taxes or triggering surrender fees (if done right).
📌 Think of it like trading in your old phone for a better one — you keep your value, but upgrade to something that works better for you.
Not everyone qualifies, and it has to be done carefully. That’s why it’s important to ask about it before you cancel or change your current plan.
📌 Tip: Patience pays off. Understanding surrender charges — and smart moves like 1035 exchanges — helps you keep more of your money, and avoid costly mistakes.
Fee #4: Policy Loan Interest
Some life insurance plans let you borrow money from your policy’s cash value. This can be helpful — but it’s not free.
It works kind of like using an ATM: you get access to your money, but there’s a fee. In this case, that fee is interest. Even if the interest rate is low, it still adds up over time.
💡 Here’s how it works: When you borrow, you’re not taking money out of the policy — you’re borrowing against it. The insurance company loans you the money, and charges interest each year the loan is active.
You don’t have to pay it back right away — but the longer the loan stays, the more it costs. If the loan gets too big, it can lower your savings or even cause your policy to fall apart.
🧠 Smart questions to ask before borrowing:
How much interest will I owe?
What happens if I don’t pay it back?
Will this affect my cash value or death benefit?
📌 Tip: Always talk to an expert before taking a policy loan. A clear plan can help you avoid surprises — and keep your savings growing strong.
Fee #5: Hidden Rider Costs
Riders are extra features you can add to your life insurance plan. Think of them like bonus toppings at a salad bar — some are great, but too many can raise your costs fast.
Some riders are worth it. Others? Not so much.
And sometimes, the cost isn’t clearly shown upfront — which means you might be paying for extras you didn’t know about.
✅ How to Be Smart About Riders:
Ask what each rider does
Check how much it costs
Remove riders that don’t fit your situation
🧠 Ask These Questions:
“Do I really need this rider right now?”
“What would this rider do for me or my family in real life?”
“Is this already included in the policy or does it cost more?”
💡 Important Riders That Usually Matter:
These are often included for free or low cost — and they can protect you while you’re still alive:
Terminal Illness Rider – lets you access money early if you’re diagnosed with a serious illness
Chronic Illness Rider – gives monthly cash if you can’t take care of yourself (like bathing or eating)
Critical Illness Rider – helps if you get something serious like cancer or a heart attack
Overloan Protection – keeps your policy from crashing if you borrow later in life
No-Lapse Guarantee – keeps the plan alive even if market returns dip, as long as you meet the basic requirements
👉 Bottom Line: Ask your advisor to walk you through each rider. Keep what helps. Remove what doesn’t. That way, your plan works smarter — and your money goes where it matters most.
Fee #6: Premium Load Fees
When you pay into a cash value life insurance plan, not all of your money goes into savings right away.
Some of it is taken out first. That’s called a premium load fee — and it’s kind of like a “toll” or “tax” you pay before your money can start working for you.
🚧 Why It Matters:
Let’s say you pay $100/month… You might only see $85 or $90 go toward your cash value — because the rest was taken out as fees. Over time, this can slow down how fast your savings grow.
✅ What You Can Do:
Ask your advisor: “How much of my premium goes to fees vs savings?”
Compare carriers — some take more than others
Design your policy smart — a well-structured plan can lower these fees over time
📌 Pro Tip: The more you know about where your money goes, the more control you have over your future.
Smart questions now = more money for you later.
Fee #7: Poor Policy Design
Sometimes, life insurance policies are set up to benefit the seller more than you. It’s like buying a car with fancy features you’ll never use — you end up paying for things that don’t actually help you.
To avoid this, have an open talk with your advisor. Ask if the policy fits your personal goals. Request to see how your money is structured inside the plan. A well-designed policy should focus on your long-term benefits — not just on maximizing the agent’s commission.
Asking the right questions can help you protect your money and make sure the plan actually supports what you and your family need.
Whether you already own a cash value policy or you’re just shopping around, it’s worth making sure the design is working in your best interest — not someone else’s.
🔎 Want a second opinion on your IUL or a quote you’ve been shown?
We work with all the major IUL carriers — so we can help you compare options, avoid design traps, and make sure your policy is structured for growth, flexibility, and long-term value.
Schedule a your Clarity Call today to see if your plan is structured for growth, flexibility, and long-term value.
Disclaimer: This guide is for educational purposes only. It is not financial, tax, or legal advice. Results from any life insurance policy — including Indexed Universal Life (IUL) — depend on product design, funding, and individual circumstances. No specific financial outcomes are guaranteed. For personalized advice, please speak with a licensed insurance professional.
