Why the Cost of Insurance Rises Year‑to‑Year in a Universal Life Policy

The cost of insurance (COI) in a universal life policy increases each year primarily because the insured's age raises the insurer's mortality risk, and the policy's expense charges are built into the COI calculation.

Age‑Based Mortality Risk

Universal life insurers price COI on a per‑thousand‑dollar‑of‑death‑benefit basis that rises as the insured gets older. Younger lives have lower expected death rates, so the COI is lower. As age advances, actuarial tables predict higher likelihood of death, prompting a higher premium charge to cover that risk.

Policy Expenses and Administrative Fees

Beyond pure mortality, the COI includes the insurer's overhead, such as administrative costs, underwriting, and profit margin. These expenses are factored into the per‑unit charge and can increase if the insurer adjusts its expense assumptions.

Impact of Cash‑Value Crediting

Universal life policies credit cash value based on a declared interest rate or indexed performance. If the credited rate falls short of expectations, the policy must draw more from the cash value to meet the COI, effectively raising the apparent cost each year.

Policy Design Features

Some policies have built‑in cost caps or "cost‑of‑insurance riders" that smooth increases, but most standard universal life contracts allow the COI to rise freely with age and expense assumptions, leading to higher required premiums over time.

Managing Rising COI

Policyholders can mitigate the impact by:

• Choosing a higher initial face amount to spread costs over a larger death benefit.
• Increasing premium payments early to build a larger cash‑value buffer.
• Selecting a policy with a lower expense load or a cost‑of‑insurance rider.