Do not change your premium payment yet. Send the carrier a written request for three things: the current cost of insurance rate scale, the guaranteed maximum rate table from your contract, and two in-force illustrations. One illustration at the new current charges, one at the guaranteed maximum charges, both solved for the premium required to carry the policy to age 100. Until those documents are in front of you, any number the carrier’s service line quotes over the phone is a guess about a policy they have not modeled.
The deadline that governs is not the date on the notice. It is the date your accumulation value can no longer cover the monthly deduction. When that happens the policy enters its grace period — on most universal life contracts, 61 days — and if the shortfall is not paid the policy terminates. Carriers are not obligated to call you. Find the current accumulation value on your most recent annual statement, divide it by the new monthly deduction, and you will know how many months of runway you actually have. That number, not the notice date, is your deadline.
A cost of insurance increase on an in-force universal life policy is a real event with a real history behind it, and it has been litigated repeatedly since 2015. Knowing what the carrier is permitted to do — and what it must document — changes what you can ask for.
In This Article
What a COI increase is, mechanically
A universal life policy is not a fixed-premium contract. It is an account. Premiums go in, interest or index credits are added, and each month the carrier subtracts a monthly deduction. That deduction has three parts: the cost of insurance charge, a per-policy administrative fee, and any rider charges. The cost of insurance charge is the price of the pure death protection — the net amount at risk, meaning face amount minus account value, multiplied by a rate per thousand that rises with the insured’s attained age.
Every universal life contract carries two rate tables. The guaranteed maximum table is printed in the policy and is a hard ceiling the carrier cannot exceed. The current scale is what the carrier actually charges, historically well below the guaranteed maximum. A COI increase is the carrier moving the current scale upward toward the guaranteed ceiling. If your policy was priced with current charges at 40% of guaranteed and the carrier moves them to 70%, nothing in the contract has been breached on its face — but the illustration you were sold in 1998 is now fiction.
The compounding effect is what surprises people. A higher deduction drains the account value faster, which increases the net amount at risk, which increases the deduction again. A policy that was projected to carry to age 100 on $4,800 a year can require $14,000 a year after a single increase at age 78. See how the cost of insurance charge is calculated for the underlying arithmetic.
The litigation history, and why it matters to your file
Beginning around 2015, a wave of class actions challenged COI increases on in-force universal life blocks. The theory was consistent: the policies permitted rate changes only on the basis of expectations of future mortality experience, applied uniformly to a class, and the plaintiffs alleged the increases were instead driven by low interest rates, reserve strain, or a desire to induce lapses.
Three examples that are matters of public record:
- Feller v. Transamerica Life Insurance Co. (Central District of California), challenging monthly deduction increases on TransUltra and TransSurvivor universal life policies, resolved by a settlement of approximately $195 million approved in 2018.
- Fleisher v. Phoenix Life Insurance Co. (Southern District of New York), where the court ruled against the insurer on COI increases affecting a class of Phoenix Accumulator Universal Life policies.
- Brach Family Foundation v. AXA Equitable Life Insurance Co. (Southern District of New York), challenging a 2016 increase applied to Athena Universal Life II policies on insureds age 70 and older with face amounts at or above $1 million, later resolved by a settlement reported at roughly $105 million.
Several other carriers have faced similar claims, and some matters remain pending. We do not assert the current status of any pending case — check the docket or ask a lawyer rather than relying on a summary written at any point in time, including this one. What matters for your decision is narrower and more useful:
If your policy is or may be within a class period, a sale or surrender can change your position. Class definitions typically cover policies in force on a stated date and sometimes exclude, or treat differently, policies that were surrendered, lapsed, or sold before the settlement. Before you dispose of the policy, find out whether a notice was ever mailed to your address of record and whether a claims administrator exists. A short call to the claims administrator costs nothing and can be worth a great deal. Background on this specific issue is in the COI increase lawsuit overview.
Exactly what to demand from the carrier, in writing
Send this by certified mail to policy owner services and keep a copy. Reference the policy number on every page. Ask for a response within 30 calendar days.
- The current cost of insurance rate scale applicable to your policy, per thousand of net amount at risk, by attained age, before and after the change.
- The guaranteed maximum cost of insurance table from the contract, with the page and section of the policy where it appears.
- The specific contract provision the carrier relies on to make the change, quoted verbatim, and the definition of the class to which the change was applied.
- A written statement of the factors considered in the redetermination. The NAIC Universal Life Insurance Model Regulation requires that changes to non-guaranteed elements be applied on a class basis and be based on expectations of future experience — not on individual policy performance and not retroactively to recoup past losses.
- An in-force illustration at current charges and a second at guaranteed maximum charges, each showing the premium required to keep the policy in force to a target age you specify. Also request a third solved to carry to a shorter horizon — age 90, for example — because the required premium is often dramatically lower and the shorter horizon may be all you need. Use the wording in this in-force illustration request script.
- The monthly deduction detail for the last 24 months, itemized into cost of insurance, administrative charge, and rider charges.
- The date and method of the increase notice sent to you. New York’s Insurance Regulation 210 (11 NYCRR Part 48), effective in March 2018, requires insurers to give New York policyholders at least 60 days’ advance written notice of an adverse change to a non-guaranteed element and to file supporting material with the Department of Financial Services. Other states have adopted narrower notice requirements. If the notice was short or never arrived, that is a fact worth documenting.
If the carrier will not produce these, that refusal itself is what you take to the state insurance department. Every state has a consumer services or market conduct unit that will open a file. Filing a complaint with your state insurance department is free, is handled in writing, and frequently produces documents that phone calls do not.
| Response to a COI increase | Keeps a death benefit | Requires insurability | Typical time to act | Main risk |
|---|---|---|---|---|
| Pay the higher premium | Yes, full face | No | Immediate | Another increase later |
| Reduce the face amount | Yes, smaller face | No | 2–6 weeks | Cannot be reversed upward |
| Fund to a shorter horizon | Yes, full face | No | Immediate | Policy fails if insured outlives it |
| 1035 exchange | Yes, new contract | Yes | 6–12 weeks | Declined underwriting |
| Surrender | No | No | 2–4 weeks | Ordinary income on gain |
| Life settlement | No | No, but health drives price | 6–12 weeks | Low or no offers if healthy |
Every option, ranked once you have the numbers
Do not rank these before you have the illustrations. The right answer changes completely depending on whether the required premium tripled or rose 20%.
1. Pay the higher premium. If the policy still delivers a death benefit at a cost below what the same coverage would cost to replace — and for an insured over 75 it usually does, because replacement requires underwriting — paying is often correct. Run the comparison rather than assuming.
2. Lower the face amount. Underused and often the best move. Reducing the death benefit reduces the net amount at risk, which reduces the cost of insurance charge directly and proportionally. A policy that fails at $750,000 may be comfortably self-sustaining at $400,000, with no medical questions and no new contract. Ask the carrier what premium carries the policy at several reduced face amounts.
3. Fund to a shorter horizon. Solving to age 95 instead of age 105 can cut the required premium substantially. If the insured is 82, funding to 105 is buying coverage almost nobody uses.
4. Check the no-lapse guarantee. If the policy has a secondary guarantee rider, the cost of insurance increase may not threaten the death benefit at all, so long as the guarantee premium is paid on schedule. Missed or late payments can permanently void these guarantees, and some cannot be reinstated. How no-lapse guarantees fail is worth reading before you assume you are protected or assume you are not.
5. Reduced paid-up or extended term. On universal life these nonforfeiture options are less standardized than on whole life, but many contracts offer a paid-up option using the account value. It stops the premium permanently at a smaller guaranteed face amount.
6. Policy loan. Borrowing to pay premiums on a policy whose charges just increased is generally a way to lose more slowly. It reduces account value, which increases the net amount at risk, which increases the very charge that caused the problem.
7. 1035 exchange. Moving the account value into a guaranteed universal life or a hybrid long-term care contract can be sound if the insured is still insurable. If the insured is not insurable, this option does not exist regardless of how attractive it sounds.
8. Accelerated death benefit or chronic illness rider. If health has changed, read the riders first. Cash from a rider does not require giving up the contract.
9. Surrender. Realizes cash surrender value, ends the coverage, and taxes gain above basis as ordinary income. On a policy with a loan, surrender can produce taxable income exceeding the cash received.
10. Life settlement. A sale to a licensed institutional buyer, usually for more than surrender value on an impaired-health insured over 70. Relevant when the coverage is genuinely no longer needed and the premium is no longer affordable at any structure.
11. Lapse. The outcome the increase is sometimes designed to produce. It yields nothing and can trigger a tax bill on a loaned policy.
When selling is the wrong answer
When the no-lapse guarantee is still intact. A secondary guarantee that is on schedule makes the account value largely irrelevant. Selling a guaranteed contract because the account value looks alarming is a genuine and expensive mistake. Check the guarantee status in writing before doing anything.
When you may be in a class. Disposing of the policy can complicate or forfeit a claim. Find out first. This costs one phone call.
When reducing the face amount solves it. If $400,000 of guaranteed coverage at an affordable premium meets the family’s actual need, taking a discounted lump sum for the whole contract is a worse trade.
When the insured is in good health. Buyer pricing is driven by life expectancy. A healthy 71-year-old with a COI problem often receives offers near or below cash surrender value, which means the sale accomplishes nothing except transaction cost. A doubled premium notice is not by itself evidence that a sale will pay well.
When the coverage is still needed and cannot be replaced. If the insured is uninsurable, the existing contract is irreplaceable at any price. Ask what it would cost to buy the same face amount today. Frequently the answer is that it cannot be bought.
When the increase is a billing error. This happens more than the industry admits. A misapplied premium, a rider that was never cancelled, a term rider that converted automatically, or an incorrect table rating can all present as a COI increase. Demand the 24-month monthly deduction detail before concluding anything.
When the policy is inside its grace period right now. Stabilize first. A sale takes six to ten weeks; a lapse takes 61 days. Pay the minimum to keep the contract alive, then decide. How the grace period works is the first thing to confirm.
A worked example
A guaranteed-issue-free universal life policy issued in 1996, face amount $500,000, insured now age 79. Account value $38,000. The old monthly deduction was $1,540. The carrier’s notice raises the current cost of insurance scale, and the new monthly deduction is $2,610.
Runway: $38,000 divided by $2,610 is roughly 14.5 months, assuming no further premium and ignoring interest credits. That is the real deadline. Not the notice date.
Options as they actually price out:
- Pay to sustain at $500,000: the carrier’s illustration solves at roughly $31,000 a year to carry to age 100. Unaffordable for most households at this stage.
- Solve to age 95 instead of 100: roughly $21,000 a year. Better, still heavy.
- Reduce face to $250,000 and solve to 95: roughly $9,000 a year. This is the option that is almost never presented unless the policyholder asks for it by name.
- Surrender: $38,000 account value less any surrender charge, taxable to the extent it exceeds basis.
- Sale: depends entirely on the insured’s medical file. On a materially impaired 79-year-old, offers on a $500,000 policy with a high ongoing premium commonly land in a wide band and sometimes at zero, because buyers underwrite the premium load as well as the mortality. On a healthy 79-year-old, expect little.
The numbers above are an illustration of method, not a quote. Your carrier’s actual figures are the only ones that matter, which is why the document request comes first.
Pine Lake Life Solutions provides education and a free policy review. We do not purchase policies and are not licensed in every state. Send the policy cover page and the most recent annual statement, and we will read the numbers with you and say plainly what we see — including when the right answer is to keep the policy and reduce the face amount. (305) 209-7183.
Frequently Asked Questions
Can the carrier legally raise my cost of insurance charges?
Generally yes, within limits. Nearly every universal life contract reserves the right to redetermine the current cost of insurance scale, subject to a guaranteed maximum table printed in the policy that cannot be exceeded. What is contested in litigation is not whether carriers may change the scale, but whether a particular change was based on permitted factors, applied uniformly to a defined class, and forward-looking rather than an attempt to recover past losses. That is a fact question about your specific contract language.
How much notice is the carrier required to give me?
It depends on the state and the contract. New York’s Insurance Regulation 210, effective in March 2018, requires at least 60 days’ advance written notice of an adverse change to a non-guaranteed element for policies subject to it. Many states have no comparable advance-notice rule and rely instead on the annual report required under the NAIC universal life model regulation. If you believe notice was inadequate, document what you received and when, and raise it with your state insurance department.
Should I stop paying premiums while I dispute the increase?
No. Disputing an increase does not suspend the monthly deduction, and the grace period runs regardless. A policy that lapses during a dispute is far harder to reinstate than it is to keep alive, and reinstatement usually requires evidence of insurability. Keep the contract in force at the minimum level that avoids grace, and pursue the dispute in parallel. Losing the policy while arguing about it is the worst available outcome.
Will reducing my face amount trigger a tax event?
A face reduction can, in some circumstances, be treated as a partial distribution and can also cause a policy to fail the section 7702 definitional tests or become a modified endowment contract. The interaction depends on the policy’s premium history and the carrier’s administration. Ask the carrier in writing whether the proposed reduction will produce a taxable distribution or change the policy’s modified endowment contract status, and confirm the answer with your own tax professional before you sign.
My policy is a guaranteed universal life, not an accumulation policy. Does this apply?
Partly. Guaranteed universal life relies on a secondary guarantee rather than account value, so a cost of insurance increase may not threaten the death benefit as long as the guarantee remains in force. The vulnerability is different: these guarantees are typically forfeited by paying late or paying less than the required amount, sometimes permanently. Confirm the guarantee’s current status and the exact required premium and due date in writing from the carrier.
How do I find out whether my policy was part of a class action?
Start with the carrier and ask whether any class notice was mailed to your address of record for this policy form. Then search the carrier name together with the policy series name and the phrase cost of insurance in a court records search or ask an attorney to check. Settlement administrators maintain websites with claim deadlines and class definitions. Do this before selling or surrendering, because disposition can affect whether a claim survives.
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Related Reading
- What Is Cost Of Insurance
- Cost Of Insurance Increase Lawsuit
- Universal Life Cost Increases
- What Is An In Force Illustration
- Request In Force Illustration Script
- Gul No Lapse Guarantee Risk
- Complaint State Insurance Department
- Premium Notice Doubled
- Grace Period Life Insurance
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.