Legal Definitions - load

A "load" refers to an additional charge or fee that is included in the price of certain financial products, such as investment securities or insurance policies. This fee is designed to cover the costs associated with selling and administering the product, including sales commissions paid to agents or brokers, and other operational expenses. It essentially represents the cost of acquiring the investment or policy.

Here are some examples of how a load might apply:

• Investment Fund Purchase:

  Imagine Sarah decides to invest in a specialized exchange-traded fund (ETF) that has a "front-end load." This means that when she makes her initial investment, a percentage of that money is immediately deducted as a fee. This deduction covers the sales commission paid to the broker who helped her purchase the ETF, as well as administrative costs incurred by the fund. Only the remaining amount is actually invested in the fund's assets.

• Life Insurance Policy:

  Consider Mark purchasing a new universal life insurance policy. The first few premium payments Mark makes for this policy include a significant "load." This portion of the premium doesn't go towards building the policy's cash value or directly covering the cost of insurance itself. Instead, it compensates the insurance agent for the sale and covers the insurer's initial setup and processing expenses for establishing the policy.

• Annuity Investment:

  Suppose Emily invests a lump sum into a deferred annuity as part of her retirement planning. Her annuity contract specifies a "contingent deferred sales load" (CDSL), often called a "back-end load." If Emily decides to withdraw her money from the annuity before a certain number of years have passed (e.g., within seven years of purchase), a percentage of her withdrawal will be deducted as this load. This fee helps the annuity provider recover the sales commissions and administrative expenses they incurred when she initially purchased the product, which were not charged upfront.