What is it called when sales and administrative charges on a life insurance policy are not deducted until the policyholder withdraws cash value?

The concept being referenced is known as back-end loading. This terminology is used in the context of life insurance policies, particularly those that accumulate cash value over time. In a back-end loaded policy, any sales and administrative charges associated with the policy are not immediately deducted from the cash value. Instead, these costs are deferred and only come into play when the policyholder makes a withdrawal from the cash value.

This structure can be beneficial for policyholders because it allows their cash value to grow without immediate deductions, potentially maximizing the investment in the early years. The policyholder can access the full cash value they have accumulated, while any fees or charges will only reduce the withdrawal amount at the time of the cash-out. This contrasts with front-end loading, where fees are deducted upfront, affecting the cash value from the beginning.

Understanding this concept is essential as it affects how policyholders manage their policy and what they can expect regarding cash value withdrawals versus total charges over time. It plays a significant role in financial planning and the overall appeal of certain life insurance products.