Cost of Insurance (COI)
The monthly charge deducted from an IUL or universal life insurance policy's cash value to cover the pure insurance protection (the death benefit component).
Understanding Cost of Insurance (COI)
Cost of insurance is based on the policyholder's age, health, and the net amount at risk (the difference between the death benefit and cash value). COI increases each year as the insured ages, which is why properly funded IUL policies need sufficient cash value growth to offset rising COI charges. A poorly funded IUL can lapse when COI exceeds the policy's cash value plus premium payments.
Why This Matters for Retirement: Understanding Cost of Insurance (COI) is essential for making informed decisions about tax-free retirement income strategies. Whether you are evaluating an IUL policy, planning Roth conversions, or comparing retirement vehicles, this concept directly affects your outcomes.