Rising Cost of Insurance (COI) Charges: Why Carriers Raise Them

What COI Charges Are and How They’re Deducted

A universal life policy is, mechanically, a cash value account with a monthly toll gate. Each month the carrier deducts:

• The cost of insurance charge — a rate per $1,000 of net amount at risk (roughly, death benefit minus cash value), based on the insured’s attained age, sex, and underwriting class;
• Policy fees and expense loads — flat administrative charges and percentage-of-premium loads;
• Rider charges — for waiver, long-term care, chronic illness, and similar riders.

Whatever remains earns interest at the carrier’s crediting rate. Premiums are technically flexible; the policy stays alive as long as the account can cover the monthly deductions. This design is why UL policies fail quietly — the toll is invisible unless you read annual statements or order projections, which is why our guide to reading an in-force illustration pairs naturally with this article.

Two structural features make COI the dominant charge late in life. First, COI rates rise steeply with attained age — mortality risk at 85 is many multiples of mortality risk at 60, and the rate schedule follows. Second, when cash value erodes, the net amount at risk grows, so the same rate applies to a bigger base. The interaction produces the well-known death spiral: weak cash value → higher deductions → weaker cash value. A COI rate increase pours accelerant on this mechanism, which is why a seemingly modest percentage increase can move a policy’s projected lapse date years closer.

The Contract’s Fine Print: Current Rates vs. Guaranteed Maximums

Every universal life contract contains two COI schedules, and the space between them is the carrier’s discretion:

• Current (non-guaranteed) rates: what the carrier actually charges today. These were often set well below the maximums when the policy was sold, making illustrations attractive.
• Guaranteed maximum rates: the contractual ceiling, typically anchored to a statutory mortality table (such as the 1980 CSO table on older policies). The carrier may charge anything up to this ceiling.

The contract language governing changes usually says current rates may be adjusted based on the carrier’s expectations of future mortality, investment earnings, expenses, and persistency — and, critically, most contracts require that rate changes apply uniformly to a class of policies, not to individuals. The carrier cannot single you out because you got sick; it can raise rates on every policy in your product generation and issue-age band.

When you bought the policy, the sales illustration almost certainly projected current rates continuing forever. The National Association of Insurance Commissioners (NAIC) has since tightened illustration rules precisely because that gap — between what was illustrated and what the contract permits — became a recurring source of policyholder harm. If you want to know your exposure today, request an in-force illustration run at guaranteed maximum charges: it shows the worst case the contract allows, and for many older policies that worst case is a lapse date uncomfortably close. The difference between the current-rate and guaranteed-rate lapse years is, quite literally, a measure of how much of your policy’s future rests on the carrier’s discretion.

Why Carriers Raise COI Rates — the Real Economics

Carriers frame COI increases in the contract’s permitted language, but the underlying drivers are well understood:

• Two decades of low interest rates. UL products of the 1980s–2000s were priced assuming the carrier could earn high yields on reserves. When portfolio yields fell toward guaranteed crediting floors of 3–4%, the interest margin — a core profit source — compressed or inverted. Raising COI rates recovers margin from a different pocket of the same policy. The interest-rate mechanics are covered in universal life interest rate sensitivity.
• Blocks that outlived assumptions. On some older blocks, insureds lived longer, kept policies longer, or funded them more efficiently than pricing assumed, turning entire product generations unprofitable.
• Reinsurance cost increases. Carriers that reinsured mortality risk have faced rate increases from reinsurers and passed the pressure through.
• Block sales and runoff economics. Older UL blocks are frequently sold to runoff specialists and private-equity-backed reinsurers whose business model is managing closed blocks for profit. Ownership changes have preceded some notable increase announcements.

Note what is not on the list: your individual health, your payment history, or anything you did. COI increases are class-level portfolio decisions. That is cold comfort when your policy is hit, but it matters for strategy — the increase will not be reversed because you complain, and it applies equally to everyone in your class, which means the response has to come from your side of the contract: restructuring, funding, or exiting on the best available terms.

Response to a COI Increase	Coverage Outcome	Cash Outcome	Key Risk
Pay the higher sustaining premium	Full coverage continues	Higher ongoing outlay	Carrier can raise rates again up to guaranteed maximums
Reduce face amount	Smaller death benefit	Premium impact softened	Irreversible without new underwriting
1035 exchange to guaranteed UL	New contract, locked premium	Cash value transfers tax-free	New contestability period; requires insurability
Life settlement	Coverage ends	Typically 10–35% of face value	Offers reduced by higher projected premiums; taxes on gain
Surrender	Coverage ends	Net cash surrender value	Often the lowest-paying exit on sizable senior policies
Do nothing	Accelerated path to lapse	$0 at lapse	Death spiral: rising charges on shrinking cash value

The Litigation Wave: When Increases Cross the Line

COI increases have generated one of the most active areas of life insurance litigation over the past decade. Policyholder class actions have alleged, among other things, that carriers:

• Raised rates based on factors not permitted by the contract (for example, to recoup past losses or subsidize interest guarantees, rather than based on changed expectations of future mortality);
• Failed to apply increases uniformly within a class;
• Used increases deliberately to induce lapses of policies the carrier no longer wanted on its books — sometimes called “shock lapse” strategies.

Several of these suits have ended in substantial settlements, with carriers refunding portions of increased charges or rolling back rates for class members. Without naming outcomes that change year to year, the pattern is established: increases are legal in principle, but the contractual basis of each specific increase is challengeable, and courts have made carriers pay when the stated justification did not hold up.

What this means for a policyholder who receives an increase notice:

• Keep every document — the notice, annual statements before and after, and your original contract with its COI change provision.
• Search for existing litigation on your product name and carrier before making irreversible decisions; if a class action is pending, class relief may affect your economics.
• File a complaint with your state insurance department — in New Jersey, the Department of Banking and Insurance — which tracks patterns and can examine carriers over increase practices.

Litigation is slow and uncertain, so treat it as a parallel track, never as the plan for keeping your coverage alive.

First Response: Quantify the Damage Before Choosing a Path

A COI increase notice usually states the change in abstract terms — a revised rate schedule effective on your next anniversary. Your job is to translate it into three concrete numbers:

• The new lapse year at your current funding. Order an in-force illustration at your existing premium under the new rates. This is the headline: has the projected lapse moved from age 96 to 91, or from 87 to 79?
• The new sustaining premium. Ask for a premium solve to age 95 and 100 under the new rates. This is the true post-increase price of your coverage. Compare it to the old premium — the percentage increase in required funding is often far larger than the stated rate increase, because of the spiral mechanics described above.
• The zero-premium runway. If you stopped paying today, how long would the policy coast? This defines your decision window; the same question is explored in how long a policy can survive without premiums.

While gathering numbers, also confirm: your current cash surrender value, any surrender charge remaining, your cost basis, and outstanding loans. If the increase notice mentions options — some carriers offer face-reduction elections alongside increases to soften the blow — get each option quoted in writing.

Resist the two reflexive reactions: paying the higher amount without checking whether the policy still makes sense, and canceling in disgust without checking what the policy is worth. Both are decisions; both deserve numbers first.

Your Menu After an Increase: Fund, Shrink, Exchange, or Exit

With the damage quantified, the realistic paths are:

• Fund through it. If the new sustaining premium is affordable and the coverage still serves its purpose — estate liquidity, spousal protection — paying more may simply be the right answer. Consider funding to the guaranteed-maximum scenario if you want certainty the policy cannot be squeezed again.
• Shrink the policy. A face amount reduction cuts the net amount at risk and therefore the dollar impact of the higher rates. Pair the reduction with a premium solve so the smaller policy is actually sustainable, not just cheaper this year.
• 1035 exchange. If you are insurable, exchanging into a guaranteed universal life product moves you from a discretionary-charge contract into one with locked premiums. Weigh the new contestability period and any surrender charges against the certainty gained.
• Sell the policy. A COI increase that makes the policy uneconomic for you does not necessarily make it uneconomic for an institutional buyer with different capital costs and a portfolio approach. For insureds 65+ with $100,000+ of face value, a life settlement — where offers are made — typically pays 10–35% of face value, often several times surrender value, per the GAO’s market study. See selling a universal life policy for the UL-specific process.
• Surrender. The floor option: collect net cash value, recognize ordinary income on any gain over basis under IRS rules, and end the exposure.

The ranking depends on health, need, and cash flow — but the ordering principle is constant: price every option before executing any, and check the settlement market before surrendering any sizable policy on an older insured.

The Strange Silver Lining: COI Increases and Settlement Value

There is an irony in how COI increases interact with the life settlement market, and understanding it helps you negotiate from strength.

A COI increase raises the future premium stream any owner must pay to keep the policy in force. For a settlement buyer pricing your policy via discounted cash flow — death benefit in, premiums out, discounted against life expectancy from two independent LE reports — higher projected premiums reduce the offer, sometimes substantially. Policies from carriers with a history of aggressive increases are priced with an extra margin of caution across the market.

But the increase cuts the other way too: it makes your alternative of keeping the policy worse, and it often arrives when policies are decades old and insureds are in the prime settlement age band. The practical result is that a post-increase policy frequently still commands offers well above surrender value — just lower than they would have been before the increase. Waiting rarely helps: if the carrier increases rates again, or if cash value erodes to the point the policy nears lapse, offers shrink further or vanish. Buyers pay for time in force; a policy 60 days from lapse is a distressed asset.

Strategy notes for policyholders exploring this path:

• Disclose the increase and provide the newest in-force illustration up front — buyers will find it anyway, and stale projections cause re-trades late in the process.
• Obtain multiple offers; buyers weigh carrier-specific COI risk differently, and the spread between offers on increase-affected policies is often wide.
• Understand the valuation drivers before fielding offers — our explainer on how life settlement value is calculated walks through the discounted cash flow logic buyers use.

The overarching lesson of the COI era is uncomfortable but clarifying: a universal life policy is a contract with adjustable pricing, not a fixed promise. Policyholders who monitor it like the financial instrument it is — annual statement review, periodic illustrations, prompt response to notices — consistently end up with more money or more coverage than those who file the mail unopened.

---

Frequently Asked Questions

Can my life insurance company legally raise my cost of insurance charges?

Generally yes, up to the guaranteed maximum rates printed in your contract. Universal life contracts allow the carrier to adjust current COI rates based on its expectations of future mortality, expenses, investment earnings, and persistency — and increases must typically apply to an entire class of policies, not to you individually. What carriers cannot do is exceed the contractual maximums or raise rates on grounds the contract does not permit, which is where the major class-action lawsuits have focused.

Why did my universal life premium go up if my premium is supposed to be flexible?

The premium itself didn’t change — the internal charges did. A universal life premium is just a deposit; the real price of coverage is the monthly COI deduction taken from your cash value. When the carrier raises COI rates, or when age-based rates climb and your cash value shrinks, the deposit needed to keep the account solvent rises. The carrier’s notice or an in-force illustration translates the rate change into the new required funding level.

What is the net amount at risk on a universal life policy?

It is roughly the death benefit minus your cash value — the portion of the payout the insurer would fund from its own pocket if the insured died today. COI charges are calculated per $1,000 of net amount at risk, which creates the notorious spiral: as cash value erodes, the net amount at risk grows, so monthly deductions increase, eroding cash value faster. This is why underfunded UL policies deteriorate at an accelerating pace in later years.

How do I find out how badly a COI increase affects my policy?

Order three in-force illustrations from your carrier: one at your current premium under the new rates (shows the new projected lapse year), one solving for the premium to sustain coverage to age 95 or 100 (shows the true new price), and one at zero premium (shows your decision runway). Also request your surrender value, cost basis, and loan balance. The stated percentage increase understates the impact — the required-funding increase is what matters.

Have policyholders successfully sued insurers over COI increases?

Yes. Over the past decade, class actions have challenged increases on older universal life blocks, alleging carriers raised rates on grounds their contracts did not permit — such as recouping past losses or engineering lapses — or applied them non-uniformly. Several suits have produced significant settlements including partial refunds and rate rollbacks. If your policy received an increase, keep all documentation and check for pending litigation on your product before making irreversible decisions.

Should I surrender my policy after a cost of insurance increase?

Not before pricing every alternative. Get the new sustaining premium, a face-reduction quote, and — if you are 65 or older with roughly $100,000+ of face value — life settlement offers, which historically pay several times cash surrender value. A COI increase reduces settlement offers somewhat, because buyers must fund the higher charges, but offers on increase-affected policies still frequently exceed surrender value substantially. Surrender is the floor; check the market before accepting the floor.

Does a COI increase mean my insurance company is in financial trouble?

Not necessarily. Increases usually reflect the economics of a specific older product block — priced decades ago on interest and mortality assumptions that didn’t pan out — rather than carrier insolvency. Some increases follow the sale of closed blocks to runoff reinsurers whose business is managing legacy policies. You can check your carrier’s financial strength ratings and your state guaranty association coverage separately; the more immediate issue is what the increase does to your policy’s lapse date.

Can the carrier raise COI rates again after the first increase?

Yes — as many times as it wishes, so long as current rates stay at or below the contract’s guaranteed maximums and the change meets the contract’s conditions. That residual discretion is itself a planning fact: an in-force illustration run at guaranteed maximum rates shows your absolute worst case. If that scenario is unacceptable and certainty matters to you, the durable answers are exchanging into a guaranteed-premium product, restructuring to a sustainable size, or exiting at the best available value.

Related Reading

• Why Universal Life Premiums Rising
• Premium Doubled What To Do
• Policy Underwater What To Do
• What Is A Life Settlement

---

Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.