TIAA-CREF still offers most cost-effective insurance policies and mutual fund products

In February 2005, Morningstar, Inc., reconfirmed that TIAA-CREF products feature some of the lowest expenses in the insurance and mutual fund industries. Morningstar says TIAA-CREF offers a wide array of customized income options and when the time comes to receive income from your accumulation, you want a retirement company that can provide a steady income stream.

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TIAA-CREF Life Insurance Co. in 2000 introduced a new universal life insurance policy that has no sales commissions or surrender fees. Plus, the policy is available to the general public.

TIAA-CREF universal life insurance policy provisions
  • Any U.S. resident 80 or younger may apply for coverage.
  • Coverage amounts start at $100,000 and range up to $1 million or more.
  • The policy is not available in Kentucky, Louisiana, Maine, Massachusetts, Mississippi, Montana, New Hampshire, New Jersey, New Mexico, North Dakota, Oregon, Tennessee, Utah, and Vermont. Jim Tolve, a spokesperson for TIAA-CREF, says his company is seeking approval to sell the policies in these states (except Louisiana, where the company is not licensed to do business), but he would not say when approval would be granted.

For more information, call TIAA-CREF at (800) 223-1200 or visit the company's Web site.

The steady income will help ensure a smooth transition from work to retirement. Examples: lump-sum and periodic payments, systematic withdrawals, minimum distributions, and annuities.

Universal life insurance is a form of whole life insurance in which the cash value in your policy earns a guaranteed rate of interest, but your premiums and coverage amounts can be flexible over time. You can pay higher or lower premiums at any time, as long as you have enough cash value in the policy to pay for the cost of insurance.

Vic Gainor, second vice president at TIAA-CREF, says that the new products are part of an effort to expand its customer base. Traditionally, TIAA-CREF's customers have been teachers and other education professionals. "The introduction of these new products is just the beginning of our entry into the broader retail life insurance market," Gainor says. "These new offerings will allow us to better address the types of financial security needs that typically call for permanent life insurance protection."

Jim Tolve, a spokesperson for TIAA-CREF, says his company is able to offer the policies without commissions because TIAA-CREF does not use traditional agents. People can buy the policies by calling (800) 223-1200. If customers need guidance in buying the policy, they may speak with a representative of TIAA-CREF's Advanced Markets Consulting Unit. Tolve says these representatives do not collect commissions on the policy.

The policy also has these features:

  • A living choices benefit, which allows a policyholder access to the death benefit if he or she is diagnosed with a terminal illness. (This feature is not available in the state of Washington.)
  • An automatic-increase rider that adjusts the policy for inflation. The rider gives a 5 percent increase in the death benefit on each of the first 10 policy anniversaries.
  • A four-year level term insurance rider, which provides additional term insurance coverage equal to 125 percent of the face amount for the first four years of the policy.
  • A waiver of the monthly deductions rider, which provides a waiver of all monthly deductions if a policyholder becomes disabled before age 65.
  • The CREF account, in contrast, has no surrender fee and an annual administrative fee of 0.36 percent.

According to 403bcompare, you would pay from 1.15 percent to 2 percent just for insurance-related charges in a MetLife program plus a 9 percent surrender fee (if money was withdrawn within the first year of deposit), a $30 contract fee and individual fund expenses ranging from 0.56 percent annually and up. Not exactly Wal-Mart pricing. This amounts to over $1400 for an investment of $10,000 in the MetLife policy versus $36 for the TIAA/ CREF.

Morningstar, in 2005, reconfirmed that TIAA-CREF products feature some of the lowest expenses in the insurance and mutual fund industries.

John Wesley, product manager of personal annuities for TIAA-CREF, says that while virtually every other investment reports net flows, "the annuity industry for years reported just on gross sales," he says.

It's an important distinction because many of those sales are actually assets that have been moved from one fund to another under what's known as a 1035 exchange, a provision in the tax code that allows people to take money out of one tax-deferred investment and put it in another one without paying any taxes or penalties.

"When a contract is surrendered, Company B picks it up as a sale, but Company A didn't report it as a loss," Wesley says. "If you look at research data like Research Insight, a good 50 percent is probably 1035 money moving around." A 1035 exchange, a provision in the tax code that allows people to take money out of one tax-deferred investment and put it in another one without paying any taxes or penalties.

An underlying reason behind the transfers, Wesley notes, is once again, commissions.

"As these things come off surrender charges, if I can convince you to move from one company to another, it generates another commission," he says. "The Securities and Exchange Commission is very sensitive to that right now. They're taking a hard look to make sure (insurance companies) are not churning these accounts. It's not always in the consumer's best interests."

It's the need to recover the money paid to the salesperson for his commission that contributes to the high surrender fees that typically lock up an investor's money for at least seven to 10 years, says Joel Javer, a certified financial planner and a partner in the firm of Sharkey, Howes and Javer Inc. in Denver, Colorado.

Surrender fees are charges, usually hefty, a customer pays for canceling a policy before some specified time has elapsed.

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