Three years ago, financial planner James D. Schwartz was reflecting on some of the instruments he was recommending to his clients. Stocks and bonds could be bought through discount brokers at substantial savings in commissions. No-load mutual funds were gaining in popularity, while funds that charged a management fee were suffering. Deferred annuities, with their low front-end commissions, also were coming on strong. There was definitely a trend, Schwartz concluded, away from "loading" financial products with such ancillary items as advisory and selling charges that many purchasers did not require.

The trend, however, was being ignored by the insurance industry, and Schwartz decided to do something about it. About a year ago, he launched his own company in Denver, to market insurance -- Consumers Discount Life Insurance. He employs no agents and keeps promotional expenses to a minimum. According to its founder, it is the country's first insurance company to "unbundle" service charges from the policies themselves.

Consumers Discount cites considerable savings, based on interest-adjusted indices, over conventionally "loaded" products. For example, a 35-year-old male nonsmoker buying $200,000 worth of Whole Life is apt to save 36% annually in premiums over a period of 20 years. A $200,000 Annual Renewable Term to 100 (ART to 100) policy on a 45-year-old nonsmoker written through Consumers Discount could save 49% annually in 10 years against competitors, says the company. In 20 years, the savings could amount to some 32% annually.

As with discount stock houses, the hitch is that the customer has to know what he or she wants, since there's no trained broker to help distinguish among Whole Life, ART to 100, and other types of insurance. However, a customer still could enjoy substantial savings even if he had to pay for advice through an independent financial planner or CPA. Fees paid for such services, Schwartz points out, could qualify as tax or investment advice, and hence would be tax deductible; if they were loaded into the premium, they wouldn't be deductible. "My clients were getting double-dipped," comments Schwartz on the old load-'em-up days. "They were paying a fee to me and giving a protected commission to a life insurance agent merely for taking an order."

Schwartz's no-commission solution appears to be just what the doctor ordered. Forty states have admitted Consumers Discount Life Insurance into insurance-selling eligibility; of these, nearly 30 have approved at least one of the two types of policies the company currently is marketing. The next big state to be won over is New York, where policies will be underwritten by Monitor Life Insurance Co. of New York. That approval, Schwartz says, is imminent. So far, Consumers Discount's policies have been underwritten by Bradford National Life Insurance Co., a Bradford National Corp. subsidiary that is licensed to sell insurance in 32 states and the District of Columbia. Though Bradford currently has only a modest B+ rating by Best's, an industry financial analyst, Schwartz was drawn to the company because it had few agents and hence could afford to sell direct. Better-rated companies tend to be larger and have huge sales forces, who would not tolerate losing their commissions. Policies of $50,000 or over are presently reinsured or coinsured with Security Life of Denver, an A+ rated firm.

Another advantage of the Bradford National affiliation is that the company has agreed to segment its investment portfolio, separating the new money it receives from Consumers Discount customers from the rest of the pool. This partitioning means that the yield on Consumers Discount's portion will not be dragged down by Bradford's earlier investments in possibly lower-yielding money instruments. Because of the resultant higher portfolio earnings, Consumers Discount's premium projections can be kept demonstrably lower than those of competing policy writers.

Insurance rates are regulated state by state, but federal statute does not allow rebating or fee offsets. This is one reason why larger companies have not yet aggressively responded to Schwartz's competition: Their clients can't negotiate insurance terms as they could, for example, stock market transactions. Consumers Discount complains that the statutory stricture leads to "legal" price fixing. Consequently, regardless of the level of service rendered by the agent, each customer ends up paying the same percentage commission. Eliminating agents' commissions enables Consumers Discount to weigh in with a lower "net cost index" for its customers. This industry-standard statistic is a factor of the premiums, dividends, and the cash value built up on a policy over the years -- an important consideration in estate planning under the new tax structure.

With minimums of $50,000 for Whole Life and $200,000 for ART to 100 (plus a preference for nonsmokers and restrictions against people with high-risk hobbies like skydiving), Consumers Discount's major customers are professionals anc executives and ownners of closely held businesses.In the future, Schwartz reports, the company hopes to market Universal Life along with its other two products. And Schwartz sees developing fields in smaller companies that will buy "key man" life insurance to protect against the loss of a valuable executive, and in policies written specifically as part of a "buy-sell" agreement to enable one partner to buy out the interests of another who has died.

The concept of discounted life insurance is starting to gain some attention among large underwriters, but none has yet come out with a similar product. Acquisition costs for larger companies can run as high as 250% of the first year's premium. These and similar built-in expenses are unlikely to decrease in the future. "Maybe we should have a black-and-white label on our policies to show they're generic," Schwartz quips. But observers predict that no-commission life (Consumers Discount's brand isn't truly "no-load," in that first-year premiums include certain costs, such as that of a physical exam) will become as much a part of the insurance industry as discount brokerage is in securities. There will always be a place for agents, just as there remains a need for customers' men at large stock market firms. But as people learn more about life insurance needs, most will be able to order their own policies and adjust their requirements as demands dictate.

Some experts foresee that as parts of the financial world merge -- such as American Express, which owns Fireman's Fund, taking over the brokerage firm of Shearson Loeb Rhoades -- life insurance policies may be used as promotional gimmicks to attract investors the way toasters lure depositors to banks. Predicts one industry executive: "It won't be too long before life insurance is given away."

But, given the certainty of death and taxes, until that utopian day deep-discounted premiums are the next best thing.

This staff-written report is based on research by Thomas Watterson.