Can insurers increase universal life charges?

Written by Hannah McCullough Insurance Researcher & Writer

Universal life separates the premium, death benefit, and cash value elements of the policy. That flexibility also makes the policy sensitive to charges, credited interest, and the amount and timing of premiums. The contract controls the answer for your policy. A general description cannot replace its guaranteed and current-value pages.

If you are deciding whether this type of coverage fits your budget, you can see your estimated rate in minutes before speaking with a licensed insurance agent. An estimate is not a policy offer, and final terms depend on the application and underwriting.

What are universal life charges?

Universal life charges are deductions made under the policy for insurance protection and policy expenses. The New York Department of Financial Services explains that premiums are credited to a cash value account, then expenses and the cost of insurance, often called a mortality deduction charge, are deducted. The remaining balance receives the interest credited under the contract.

A policy may show a mortality or cost-of-insurance charge, expense charges, premium loads, and charges for optional riders. The names and formulas vary by contract. Treat the policy pages and annual statement as the controlling record, not a generic illustration from another insurer.

Can a current charge go up after the policy is issued?

A current charge can rise when the contract gives the insurer that right. New York DFS says universal life policies can include a maximum mortality charge and, on some policies, a maximum basis for the expense charge, while the initial mortality and expense charges are not necessarily guaranteed for life. The applicable limit and calculation must come from your policy.

That does not mean every number can change at will. The contract identifies which charges may change, how they are calculated, and which guarantees apply. It may also contain separate guarantees for interest crediting, the death benefit, premium requirements, or lapse protection. Ask the insurer to point to the exact provision before treating a statement change as an error.

Why can the cost change?

The cost can change because current assumptions about investment earnings, claims costs, and expenses can differ from the assumptions used when the policy was illustrated. The National Association of Insurance Commissioners says premiums for many life policies are sensitive to those factors and recommends asking what the highest premium could be to keep coverage in force.

A lower credited interest rate can also leave less cash value after deductions. That is different from an insurer increasing a charge, but both changes can create a need for more funding. Ask for the current deduction, the guaranteed maximum, and the interest assumptions as separate numbers.

How do higher deductions affect cash value?

Higher deductions leave less of the account value to accumulate, so the policy may need more funding to stay in force. New York DFS warns that universal life requires active management and realistic assumptions because the owner may need to pay more to keep the policy from decreasing or lapsing.

The effect depends on the policy design, account value, death-benefit option, loans, riders, credited interest, and premium history. A lower cash value is a reason to request a current in-force illustration, not proof by itself that the insurer violated the contract. The illustration should show the result under both current and guaranteed assumptions.

What should you check in the policy?

Start with the contract’s definitions and tables. Check the current and guaranteed cost-of-insurance rates, expense-charge provisions, premium loads, surrender charges, interest guarantees, and no-lapse conditions if the policy has them. Confirm whether a stated maximum applies to the charge itself, the rate used to calculate it, or another part of the formula.

Then compare the policy with a current in-force illustration. The NAIC recommends asking for an illustration showing future values and benefits and identifying which premiums or values vary from year to year. Treat a projected cash value as a scenario, not as an amount the insurer promises to deliver.

Keep the original policy, annual statements, notices, and illustrations together. If a deduction does not match your understanding of the contract, ask the insurer for a written explanation that identifies the provision and calculation. A licensed insurance agent or insurance-company representative can explain terms, but the policy is the controlling document.

What can you do if the charge increases?

First, identify what changed. It may be a charge increase, a lower interest credit, a missed or reduced premium, a new rider, a policy loan, or a death-benefit change. Ask for a current in-force illustration and the amount needed to keep the policy in force under current and guaranteed assumptions.

Next, ask what choices the contract permits. Depending on the policy, you may be able to change the premium, reduce the death benefit, remove an optional rider, or use another contractual option. Each choice can alter coverage, cash value, guarantees, or future underwriting. Do not reduce or stop premiums until you understand the lapse provisions.

If the explanation does not resolve the issue, contact your state insurance department for consumer guidance or its complaint process. A regulator can explain the process, but it cannot rewrite your contract or decide what a replacement policy should cost. Keep copies of the policy and the insurer’s response.

How does universal life compare with other coverage?

Universal life is cash-value coverage with a flexible premium pattern, provided enough funding is paid to keep the policy in force. Whole life generally uses a set premium schedule, while term insurance covers a defined period and most term policies do not build cash value. The NAIC describes these differences and cautions consumers to compare the features that fit their needs.

When you compare universal life insurance cost breakdowns, compare the same items across policies: guaranteed and current charges, premium requirements, death-benefit options, credited-interest assumptions, surrender values, loans, and lapse protection. A lower planned premium is not automatically a lower long-term cost if the policy depends on favorable assumptions to stay in force.

Could a lapse or surrender create a tax issue?

It can. The IRS says that when a life insurance policy is surrendered for cash, proceeds above the policy’s cost generally must be included in income, and the owner should receive Form 1099-R. A lapse, loan, or replacement can change the tax analysis, so the surrender rule is not a complete answer for every policy.

Before surrendering, replacing, or allowing a policy to lapse, ask a qualified tax professional to review your facts, including premiums paid, loans, basis, and what happens to the contract. Do not treat a projected cash value or a phone estimate as tax advice.

What is the practical answer?

Insurers can increase some universal life charges when the contract permits a change, but the policy’s guarantees and maximums limit what may be changed. The safest review compares the current statement with the charge provisions and a current in-force illustration. Request a written explanation before changing funding or coverage.

If you are comparing coverage after that review, you can see your estimated rate in minutes and then decide whether a licensed insurance agent should walk through the policy details. The estimate is only a starting point. Read the final contract, confirm what is guaranteed, and make sure the funding requirement fits your budget.