Cost type (cost of insurance or COI)

Cost type, also referred to as cost of insurance (COI), is a key feature of universal life insurance policies. It determines how the insurance charges change over time and directly impacts the overall affordability, structure, and flexibility of the policy.

There are two main types of cost structures used in universal life insurance: Level cost of insurance (LCOI), and annually increasing cost of insurance (YRT or AI COI).

Level cost of insurance (level COI)

With a level cost of insurance, the insurance charges remain consistent each year throughout the life of the policy. The cost is spread evenly over time, meaning premiums are typically higher in the early years but do not increase with age.

Key features

• Predictable and stable insurance costs
• Easier long-term budgeting
• Suitable for clients seeking permanent coverage with stable payments

Annually increasing cost of insurance (YRT or AI COI)

With an annually increasing cost of insurance, the charges start lower and increase each year as the insured person ages. This structure offers lower premiums in the early years but becomes progressively more expensive over time.

Key features

• Lower initial premiums
• Increases in cost each policy year
• Greater potential for early cash value growth if overfunded
• Requires long-term funding strategy to manage rising costs

Choosing the right cost type

Selecting a cost type should align with your financial goals, risk tolerance, and how long you intend to keep the policy. Those seeking predictable costs may prefer the level option, while those focused on affordability in the short term or building early policy value might choose the annually increasing structure.

Some universal life policies allow changes to the cost type after issue, but this may be subject to restrictions.