Cost of insurance (COI) is the pure mortality charge deducted from the cash value of a universal life or variable universal life policy to cover the risk of paying the death benefit for that period. COI is typically calculated as the net amount at risk multiplied by an age- and risk-class"based rate from the carrierTMs COI schedule. As insureds age or death benefits increase, COI charges usually rise. COI, combined with policy expenses and credited interest or investment performance, determines whether cash values grow, remain stable, or erode over time.

Advisors explain cost of insurance when reviewing universal life illustrations and in-force performance, especially if policies require higher premiums than originally planned. They highlight the difference between current and guaranteed COI rates and show how increases in COI or lower crediting rates can accelerate cash-value depletion. Policy reviews often involve adjusting premiums, reducing face amounts, or exploring 1035 exchanges if COI has become unsustainable. Understanding cost of insurance helps advisors demystify policy mechanics and communicate why ongoing monitoring is critical for flexible-premium products.