Level cost of insurance (LCOI) is a type of cost structure available in universal life insurance that keeps the cost of insurance fixed and predictable throughout the life of the policy. Under this structure, the cost does not increase as the insured person ages, making it easier to budget over the long term.
Instead of gradually rising premiums like with annually increasing cost structures, LCOI spreads the cost evenly across the policy, typically resulting in higher payments in the early years and lower relative costs in later years.
How LCOI works
When you choose a level cost of insurance option:
- Your monthly insurance charges are calculated based on your age at the time the policy is issued
- These charges are then locked in and remain level for life (or until a specified age such as 100)
- The insurer sets the rate at issue, based on factors like age, sex, smoking status, and health classification
- The cost is deducted monthly from your policy’s investment accounts
Key benefits of level cost of insurance
Stable pricing
Premiums are consistent over time, making it easier to plan and budget
Long-term savings
While LCOI starts higher, it can cost less over the full lifetime of the policy compared to rising cost structures
Suits lifelong coverage needs
Ideal for individuals who want to hold the policy for the long term, including estate planning and permanent insurance needs
Considerations with LCOI
Higher early premiums
The initial cost is higher than other options like annually increasing cost of insurance (YRT)
Less flexibility in the short term
It may not suit clients with tighter budgets or short-term needs
Only available with specific payout options
In many cases, level COI is only available with a coverage plus payout, not a level payout
Who should consider LCOI?
LCOI is generally best suited for:
- Clients who want long-term, permanent insurance
- Those who value predictable, stable pricing
- People who want to reduce the risk of rising costs later in life
- Policyowners interested in using the policy for estate planning or legacy purposes
Level COI vs. annually increasing COI: summary table
| Feature | Level COI | Annually increasing COI |
|---|---|---|
| Premium stability | Fixed for life | Increases every year with age |
| Initial cost | Higher | Lower |
| Long-term cost | Often lower | Can become expensive in later years |
| Best for | Long-term planning and budgeting | Short-term affordability |
| Risk of premium shock | Low | High in later years if underfunded |