- Generally applicable to life insurance policies such as Variable and Universal Life, the cost of insurance charges are monthly charges for mortality, administration, and other aspects of expenses on the part of the life insurance company¾assessed against the policy based on specific criteria of the insured:
- Attained age
- The original rating class, and
- The current net amount at risk
In most cases, the cost of insurance is deducted from any premium payments made before crediting the account’s accumulation value. Additionally, the historical price of insurance charges is used when determining Cost Basis, which is vital for tax considerations of surrendering a life insurance policy or selling a policy.