In all of the research I've been doing there are warning about hidden fees and commissions but how do I know if I've uncovered all of the possible "hidden" fees? What are normal fees for a whole vs. term policy?
This is a very confusing thing to understand as life insurance policies have many different types of fees. Depending on the type of policy, company and riders, figuring out fees on a policy is no easy task. As an independent insurance broker, I have access to many different companies and policies. A good agent can review the different fees and cost with each policy so you have the best opportunity to make a strong decision based off your needs. The best way to analyze this is through the illustration and policy contract.
Margaret - if you are asking specifically about whole vs. term life insurance, then the information will be available in the disclosure document provided by the insurance company.
Whole life policies are especially difficult to dissect, because the fees and expenses associated with them are paid for over time through inferior risk-adjusted investment performance. In short, you may never know how bad a policy is until it's too late to do anything about it! As a rule, whole life policies offer extremely poor value for consumers, especially in a low interest rate environment. I can virtually assure you, without having seen the specific policy you are considering, that you can do better with Term Life coverage coupled with a diversified investment portfolio.
You may have heard the old saw "buy term and invest the difference." There is sound reasoning that underpins this cliche: by un-bundling the insurance risk from the investment risk, you can more fairly evaluate the benefits, costs, and risk of each. I realize this response does not exactly address your question, but I hope it leads you to carefully evaluate your options.
As an RIA and a licensed insurance agent, I would say you are comparing apples and oranges when talking about term insurance versus whole life or another cash or permanent product. I hate the terms “commissions and hidden fees” because if you buy an insurance product, someone is going to earn a commission. If you go online and purchase term insurance or buy it from and agent directly, they will generally get 60% or more of the first year premium in commission. It cost you no more or less based on where you purchase it. But what you are buying with term insurance is pure death benefit only, nothing else. So it would behoove an individual to shop term through an independent agent.
With whole life, universal life and variable universal life, it is important to have your agent run an illustration based on minimum rates of returns and guarantees. This will give you an idea of how costs degrade the growth in cash value.
In whole life and universal policies, the money is invested in the company's general account and your returns are based on their investment return and internal cost structure as well as the basic cost to insure you.
If you purchase variable universal life, the premiums are invested in separately managed accounts, and you take the investment risk. It is actually easier to get the costs associated with this product because the agent has to give you a prospectus since it is an investment product. However, beware. The prospectus is like navigating a small local telephone book.
If you want to know what the agent is earning in commission, simply ask them. They are generally paid well as a percentage of the first year premium.
All good points; it is confusing and lots of information out there. Ideally, you can find an adviser who has an insurance background but is independent ( not an agent for one company). If you trust this individual and they are explaining concepts in a manner that you can digest - working with then is the best route in my view.