July 2, 2026
10:07 pm

Why Universal Life Premiums Keep Rising

Universal life premiums rise because the policy’s internal cost of insurance (COI) charges increase every year with age — and because decades of interest crediting below the original illustration left many policies underfunded, forcing owners to pay more just to keep coverage alive. Some carriers have also raised COI rate scales themselves on older blocks of business, compounding the squeeze. The “premium” you were quoted at purchase was never guaranteed; it was a projection built on 1980s–1990s interest assumptions that never materialized.

This article explains the mechanics behind the increases, how to diagnose your own policy, and the full menu of responses — from restructuring to selling.

In This Article

The Design Truth: Universal Life Never Had a Fixed Premium
Driver One: Cost of Insurance Charges Climb Every Year
Driver Two: The Interest Rate Era That Broke the Illustrations
Diagnosing Your Own Policy: The In-Force Illustration
Responses That Keep the Coverage
Responses That Exit the Policy
Protecting Yourself Going Forward
Frequently Asked Questions

The Design Truth: Universal Life Never Had a Fixed Premium

The root of most UL premium shock is a misunderstanding baked in at the point of sale. Universal life is not whole life with flexibility bolted on — it is a fundamentally different machine. Each month, the carrier deducts from your policy’s account value: a cost of insurance charge based on your current age and the net amount at risk, plus administrative and rider charges. Whatever you pay in premiums, minus loads, gets credited to the account along with interest. The policy stays alive only while the account can cover the monthly deductions.

The “planned premium” on your original illustration was simply one scenario: a payment level that, if the assumed interest rate were credited forever, would keep the account solvent for life. It was never a contractual promise. When reality undershoots the assumptions, the same planned premium quietly becomes inadequate — and the shortfall compounds silently for years before the annual statement makes it obvious.

This design has real advantages: you can pay more in good years, less in lean ones, and adjust the death benefit as needs change. But it transfers three risks from the insurer to you that whole life keeps on the insurer’s side: interest rate risk, mortality-charge risk, and the risk of your own underfunding. Understanding that transfer is the first step in diagnosing any premium increase — and in deciding whether the policy is still the right vehicle, a question this article shares with universal life and interest rates and with the broader affordability playbook in can’t afford life insurance premiums.

Driver One: Cost of Insurance Charges Climb Every Year

The single largest deduction in most UL policies is the cost of insurance — essentially one-year term insurance repriced monthly on the insured’s attained age. Mortality risk rises exponentially with age, and COI rates follow: charges at 80 can run many multiples of charges at 60 per dollar of coverage.

Two features make this steeper than owners expect:

The net amount at risk effect. COI is charged on the difference between the death benefit and the account value. In a well-funded policy, growing account value shrinks the net amount at risk, partially offsetting rising rates. In an underfunded policy the opposite happens: a stagnant or falling account value keeps the net amount at risk high exactly as the rates spike — the two problems multiply each other.
Carrier COI rate increases. Contracts specify guaranteed maximum COI rates but allow carriers to charge less — and most did for decades. Since the mid-2010s, a number of insurers raised current COI scales on older UL blocks, citing sustained low interest rates and updated mortality experience. Litigation and regulatory scrutiny followed; state regulators and the NAIC have examined the practices, and some suits settled. But increases within the guaranteed maximums are generally permissible, and owners of 1980s–2000s policies remain exposed.

The compounding of age-driven increases, a high net amount at risk, and a possible rate-scale increase explains the classic phenomenon: a policy that ran happily on $4,000 a year for two decades suddenly demanding $9,000, then $14,000. The mechanics of these accelerating deductions are dissected further in rising cost of insurance charges.

Driver Two: The Interest Rate Era That Broke the Illustrations

The second driver is historical. Universal life boomed in the early 1980s precisely because interest rates were extraordinary — carriers credited 10–13% and sales illustrations projected those rates for decades. A policy illustrated at 11% needed remarkably little premium: the interest was supposed to do the heavy lifting.

Then rates fell for thirty years. Crediting rates slid down through the 1990s and 2000s and pinned at contractual minimums — typically 2–4% on older policies — through the 2010s. The consequences for an owner paying the original planned premium:

The account earned a fraction of the projection. A policy illustrated at 11% but credited 4% might accumulate less than half the projected value by year 20.
The shortfall compounds. Lower account value means higher net amount at risk, means higher COI deductions, means still-lower account value. Underperformance feeds on itself.
The failure arrives late and fast. Because deductions are small at young ages, an underfunded policy can look adequate for 15–25 years, then unravel in five. Owners in their late 70s discover the policy needs triple the premium precisely when their income is least flexible.

Even the recent rise in market interest rates has helped only modestly: carriers raise crediting rates slowly, and for a policy already deep in the compounding hole, a point of extra interest rarely closes the gap. The full anatomy of this dynamic — and why guarantees mattered so much — is the subject of universal life and interest rates: why your policy underperformed. The practical takeaway here: your premium is rising because yesterday’s illustration, not today’s carrier, set the expectation.

Cause of Rising UL Premiums	What Is Happening Inside the Policy	Who Is Most Affected	Primary Remedies
Age-driven COI increases	Mortality charges reprice upward every year with attained age	All UL owners, steepest past age 75	Reduce face amount; catch-up funding; option B→A switch
Chronic underfunding vs. original illustration	Account value far below projection; net amount at risk stays high, inflating charges	Policies sold 1980s–2000s illustrated at 8–13%	Lump-sum refunding; face reduction; 1035 to guaranteed product
Low interest crediting for decades	Credited rate at or near contract minimum (2–4%) vs. double-digit assumptions	Older fixed-account UL policies	Reassess with in-force illustration; restructure or exit
Carrier COI rate-scale increases	Insurer raises current charges toward guaranteed maximums on older blocks	Specific carriers/blocks, mostly mid-2010s onward	Verify against guarantees; regulator complaint; restructure or exit
Policy loans and withdrawals	Loans reduce account value; interest compounds; charges accelerate	Owners who borrowed heavily	Repay/restructure loan; reduced paid-up alternatives; managed exit
Lapsed no-lapse guarantee	Missed cumulative premium test voids secondary guarantee	GUL owners who paid late or skipped payments	Sometimes irreversible; explore reinstatement, restructuring, or sale

Driver Two: The Interest Rate Era That Broke the Illustrations

Diagnosing Your Own Policy: The In-Force Illustration

Before responding to any premium increase, get the facts — and the fact source for a UL policy is the in-force illustration, a projection the carrier must provide on request, usually free. Ask for one showing:

Current-assumption and guaranteed scenarios at your current payment level: when does the policy lapse under each?
The level premium to sustain coverage to age 90, 95, and 100 (or maturity) under current assumptions.
A minimum-funding scenario: the smallest payments that keep coverage to a specific age you choose.
A reduced face amount scenario: what premium sustains, say, 50–60% of the current death benefit.

Read the deduction columns, not just the summary: the year-by-year COI charges reveal whether the problem is age-driven (a smooth steep curve), rate-scale-driven (a visible jump), or funding-driven (net amount at risk stuck high). A guide to interpreting each column is at how to read an in-force illustration.

Also pull the annual statements from the last three years and check for warning signs: account value declining despite premiums paid; loans or withdrawals compounding; a no-lapse guarantee flagged as “off track” (missed cumulative premium tests can void the guarantee permanently); and grace-period notices, which on UL mean account value has already hit the floor described in the grace period explained. Ten minutes with these documents converts panic into a specific, quantified problem — which is the only kind that can be solved deliberately.

Responses That Keep the Coverage

If the death benefit still matters, several restructurings can bring a runaway UL policy back within budget:

Reduce the face amount. The highest-leverage fix. Cutting the death benefit cuts the net amount at risk, which cuts COI charges directly — often disproportionately. Many owners find that 50–60% of the coverage is sustainable at roughly the premium they were already comfortable paying. Most carriers process reductions without underwriting.
Switch death benefit option B to A. If your policy pays face amount plus account value (Option B/2), switching to level (Option A/1) shrinks the net amount at risk and slows deductions.
Targeted catch-up funding. If liquid assets exist, a lump sum can lift the account value enough to restart the virtuous cycle (higher value → lower net amount at risk → lower charges). The in-force illustration quantifies exactly how much buys how many years. Mind the MEC limits — the carrier will test.
Drop riders you no longer need. Each rider carries monthly charges that compound the problem.
Check for hardship or conservation programs. Some carriers offer premium flexibility, benefit adjustments, or settlement-style options for owners in distress — surveyed in carrier hardship programs.
1035 exchange — carefully. Exchanging into a new policy (for example, a guaranteed UL with a no-lapse guarantee) preserves basis tax-free under IRC Section 1035, per IRS rules. But new underwriting at attained age, new surrender charges, and new contestability apply; exchanges rescue some situations and worsen others. Insist on side-by-side in-force illustrations before moving.

The common principle: solve for the coverage you actually need at the funding you can actually sustain, rather than defending the original face amount at any cost.

Responses That Exit the Policy

Sometimes the diagnosis is terminal: the premiums required exceed any reasonable budget, and the coverage need has genuinely shrunk. Then the question becomes how to exit with the most value.

Surrender. The baseline. You collect the account value minus surrender charges, taxable as ordinary income above basis. For a long-underfunded policy the number may be modest — which is precisely why it should be benchmarked before accepting it.
Life settlement. For insureds generally 65 and older (younger with health impairments), face amounts of $100,000+, and policies in force two-plus years, the settlement market prices the policy on life expectancy rather than account value. Underfunded UL on an older insured is, somewhat counterintuitively, the settlement market’s core product: buyers care about the death benefit and future premium stream, not the depleted account. The GAO’s study found settlements paying roughly four to eight times cash surrender value, with offers typically 10–35% of face. The process takes 60–120 days and is state-regulated with licensing and rescission protections. Start with what is a life settlement and the comparison in life settlement vs. surrender.
Managed lapse — almost never. Walking away yields nothing, may trigger phantom income tax if loans exist, and forfeits whatever the market would have paid. If exit is the answer, an appraised exit dominates an abandoned one.

One sequencing rule matters: every exit requires an in-force policy, and settlement underwriting takes weeks. An owner facing a premium deadline should usually make the minimum payment that keeps the policy alive while quotes are gathered — spending a few hundred dollars to preserve options potentially worth tens of thousands.

Protecting Yourself Going Forward

Whether you restructure or exit, the episode teaches a discipline every UL owner (and heir who may inherit a policy) should institutionalize:

Annual statement review, every year. Track three numbers: account value trend, total annual deductions, and projected lapse year. A policy drifting toward trouble telegraphs it years ahead — to anyone who looks.
In-force illustration every 2–3 years, and after any carrier notice of COI or crediting changes. Request both current and guaranteed scenarios each time.
Guard no-lapse guarantees jealously. If your policy has a secondary guarantee, confirm annually that cumulative premium tests are satisfied; a single missed or late payment can void protections that cannot be restored, a failure mode described in what happens when life insurance lapses.
Keep contact information current and name a notice designee. Many states let you designate a third party to receive lapse warnings — free insurance against the silent failure.
File complaints where warranted. If a COI increase seems improperly implemented or disclosures were inadequate, your state insurance department has jurisdiction; New Jersey policyholders can contact the NJ Department of Banking and Insurance.
Reassess the policy’s purpose each decade. The coverage bought at 45 for income replacement may, at 75, be better recast as a smaller legacy vehicle, converted value, or a sellable asset. Policies are tools; when the job changes, the tool should be re-evaluated.

Rising UL premiums are rarely anyone’s plan, but they are almost always survivable when caught early. The owners who lose the most are those who learn how their policy works only from its termination notice.

Frequently Asked Questions

Why did my universal life insurance premium suddenly go up?

Usually it did not “go up” in the contractual sense — the required funding finally caught up with you. UL deducts monthly cost of insurance charges that rise with age, and if your account value is depleted (often because crediting rates ran far below the original illustration for decades), the policy needs bigger payments to stay solvent. Separately, some carriers have raised their COI rate scales on older policies, which does directly increase deductions. An in-force illustration will show which factors are driving your specific increase.

Can insurance companies legally raise cost of insurance charges on existing policies?

Within limits, yes. UL contracts state guaranteed maximum COI rates; carriers historically charged less, and the contract typically allows current rates to move up to the guaranteed ceiling based on the insurer’s expectations of mortality, interest, and expenses. Increases on older blocks since the mid-2010s have drawn class-action litigation and regulatory attention, and some were rolled back or settled. Check your policy’s guaranteed rate table, ask the carrier to justify any increase in writing, and contact your state insurance department if it appears to exceed contractual bounds.

What happens if I just keep paying my original planned premium?

If the policy is underfunded, the shortfall compounds: monthly deductions exceed premium plus interest, the account value erodes, the net amount at risk stays high, and charges accelerate. The policy can look stable for years and then fail quickly — many owners receive their first grace notice in their late 70s or 80s. Request an in-force illustration showing the lapse year at your current payment level. If that year is earlier than your life expectancy, the original premium is no longer a plan; it is a countdown.

Will rising interest rates fix my underperforming universal life policy?

Only partially, and slowly. Carriers adjust crediting rates gradually and portfolio yields turn over multi-year horizons, so a rise in market rates reaches your policy with a long lag. More fundamentally, a policy that spent 20 years earning 4% instead of the illustrated 10% carries a compounding deficit that an extra point or two of interest rarely closes, because COI charges are simultaneously accelerating with age. Treat higher rates as a tailwind worth quantifying in a new in-force illustration — not as a rescue.

Should I reduce my universal life death benefit to lower the cost?

It is often the single most effective fix. COI charges are levied on the net amount at risk — death benefit minus account value — so reducing the face amount cuts charges immediately and disproportionately. Many owners discover that 50–60% of their current coverage is sustainable at the premium they can actually afford, without underwriting. Ask the carrier for in-force illustrations at two or three reduced face levels. Just confirm whether any surrender charge, no-lapse guarantee test, or rider is affected before executing the change.

Is an underfunded universal life policy worth anything if I stop paying?

Possibly a great deal — but not through the carrier. Surrender value on a depleted UL policy may be small, yet the settlement market prices the death benefit and the insured’s life expectancy, not the account balance. Insureds 65 and older with policies of $100,000 or more in face value are the core market; GAO research found settlement payments averaging four to eight times cash surrender value, with offers typically 10–35% of face. Get an appraisal before letting the policy lapse, because a lapsed policy is worth nothing.

What is a no-lapse guarantee and why does missing a payment matter so much?

A no-lapse (secondary) guarantee keeps a UL policy in force even when the account value hits zero, provided you satisfy the contract’s cumulative premium tests — essentially, that you have paid at least the specified premiums on time throughout. Miss or delay payments and the guarantee can switch off permanently, leaving the policy dependent on account value alone; reinstating the base coverage later rarely restores the guarantee. If your policy has one, verify its status annually in writing, because it is frequently the most valuable feature of the entire contract.

Should I do a 1035 exchange out of my old universal life policy?

Sometimes. A 1035 exchange moves your cash value into a new policy tax-free, preserving basis — useful for escaping a structurally failing contract into, say, a guaranteed universal life product with locked premiums. But it requires fresh underwriting at your current age and health, starts new surrender-charge and contestability periods, and pays new commissions. Exchanges are also a known area for unsuitable sales practices. Demand side-by-side in-force illustrations of keeping versus exchanging, and have someone without a commission stake review the comparison.

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