Cost of Insurance (COI)
Terms related to the financial mechanics, value, and tax treatment of policies.
What Is Cost of Insurance (COI)?
The cost of insurance (COI) is the monthly charge deducted from the cash value of a universal life or indexed universal life policy to pay for the pure death protection component of coverage. It is based on the insured's age, gender, health classification, and the net amount at risk (the difference between the death benefit and the cash value). COI charges increase as the insured ages, because mortality risk rises each year. In well-funded IUL policies, strong cash value accumulation can offset rising COI charges. However, if premiums are insufficient and cash value is depleted, COI increases can eventually cause the policy to lapse.
Nevada Context
Nevada requires insurers to project COI charges in policy illustrations. When reviewing IUL illustrations, pay attention to COI trajectories at different ages — particularly in stress-test scenarios.
How It Affects You
Rising COI is one of the most important factors in evaluating universal life policies. Underfunding a UL or IUL policy in early years can result in dramatically higher costs later and potential lapse.
Cost of Insurance (COI) in Practice
A 55-year-old Nevada IUL policyholder pays an illustrative $18/month COI deduction; by age 70, that same deduction may rise to $65/month or more, making adequate funding critical to maintaining coverage.
Dollar amounts shown are illustrative. Actual amounts vary by carrier, applicant age, health status, and individual underwriting.
Related Glossary Terms
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