Myth No. 2: Agents always disclose their commission
Want to know exactly how much commission your agent is making on your life insurance policy?
Good luck finding out.
"It's a real quagmire," says Steuer. "Life insurance is the last financial industry where compensation is not fully disclosed." Instead, it's buried so deep in the contract that it would take a forensic dentist to extract it.
That's by design. The insurance industry has long maintained that divulging the commission on whole life -- which Hunt says can typically run 85 percent of first-year premiums with annual renewal commissions of 7 percent for the next decade -- could kill the sale.
Despite this dated defense, disclosure is already required overseas.
"It's something that is going to catch on more and more in the (U.S.) life insurance industry," Steuer says.
Until it does, Hunt suggests two workarounds:
- Compare the first-year surrender value to the first-year premium. The closer the surrender value is to zero dollars, the more money is going into the agent's pocket. There's just one catch: You would need to have purchased the policy to get this information.
- Get a competing quote from TIAA-CREF, which sells direct policies without commissions. This will give you a rough idea of how much commission your policy contains.