What Is Cost of Insurance in Universal Life?
Plain-English definition: A charge supporting the insurance risk, often affected by age, insured amount and contract terms.
One charge within a flexible permanent policy
Cost of insurance is a mortality-related charge in certain permanent policies. It can change under contract formulas and is only one part of total policy charges.
Monthly deductions can outpace credited value
Breaking a monthly deduction into its parts
In universal life, monthly deductions can include cost of insurance plus administrative and rider charges. If deductions outpace values, more premium may be needed to avoid lapse.
Internal charges and premium are different numbers
Cost of insurance is an internal charge. Premium is the amount paid into the policy and can exceed or fall short of current deductions.
Review current and maximum charge rates
- Find current and guaranteed maximum charge rates
- Review all deductions, not one charge
- Test lower-crediting or higher-charge scenarios
Connect deductions, value and lapse risk
Use universal life insurance explained to see how this definition affects a real policy decision.
Terms to read alongside cost of insurance
Sources for understanding cost of insurance
This page explains general insurance usage. State law, the issued contract and the insurer's current records control a specific policy. Use the sources below to verify general terminology, then check the exact policy language.