Monthly deduction is the aggregate charge taken from a flexible-premium life insurance policy's cash value each month to cover the cost of insurance, policy expenses, and any rider fees. In universal life, indexed universal life, and variable universal life contracts, the carrier calculates the monthly deduction based on the insured's age, risk class, net amount at risk, and scheduled policy charges. This deduction is withdrawn from the policy accumulation value, and if the value is insufficient, the policy may enter grace or lapse without additional premiums. Monthly deduction components are typically disclosed in the policy and in illustration details, and they may change over time as the insured ages or as the insurer adjusts non-guaranteed elements within contractual limits. Understanding monthly deduction is essential for evaluating policy performance, lapse risk, and the sustainability of planned premium funding.

In practice, monthly deduction is discussed when advisors review universal life performance or explain why a policy's cash value is not meeting expectations. Inforce illustrations show projected monthly deductions under various interest or index-crediting scenarios, helping advisors demonstrate how rising costs at older ages can erode values if premiums are not adequate. When clients request premium reductions or holidays, agents often explain that monthly deductions will continue, potentially causing lapse if cash values are insufficient. Carriers sometimes increase cost-of-insurance or expense charges within contractual limits, which raises monthly deductions and can trigger client concerns or class-action scrutiny. Advisors who understand monthly deduction mechanics can proactively manage funding, recommend adjustments, and avoid surprises in later policy years.