Does Cost of Insurance Go Up on Variable Life Insurance

Does the Cost of Insurance Go Up on Variable Life Insurance

The cost of insurance on a variable life policy can increase over time, driven by mortality charges, administrative fees, and the performance of the underlying investment accounts. While the premium may stay level, the net amount at risk and the cost of insurance typically rise as the insured ages or as the cash value fluctuates.

How Mortality and Cost of Insurance Are Charged

Variable life policies charge a cost of insurance based on the death benefit minus the cash value. As the cash value grows, the net amount at risk shrinks, which can lower the pure insurance cost. However, insurers often recalculate mortality charges on older ages or higher benefit amounts, which can push the cost upward.

Why Premiums or Fees May Increase

Although the stated premium often stays the same, several factors can raise the effective cost:

• Mortality charges that increase with age or benefit adjustments
• Administrative and rider fees added to the policy
• Underfunding when investment returns fall short of assumptions
• Policy loans or withdrawals that reduce cash value

Investment Performance and the Net Cost

If the separate account investments lose value, the cash value shrinks and the net amount at risk grows. Insurers may then charge a higher cost of insurance to offset the increased risk. Conversely, strong market gains can lower the effective insurance cost temporarily, but the structure is designed to ensure the insurer remains protected over time.

Managing and Reducing Cost Increases

Policyholders can reduce the impact of rising costs by keeping premium payments current, monitoring the cash value regularly, and avoiding unnecessary loans or withdrawals. Some policies allow a reduction in the death benefit, which lowers the net amount at risk and can slow or reduce cost of insurance growth. Reviewing the policy illustration with the insurer or a fee-only advisor helps separate guaranteed charges from projected outcomes.