IUL cost of insurance and charges: premium charge, policy charge, COI, surrender charge and loyalty crediting rate

Definition in one sentence, and a summary table of charges

IUL charges are the fees the insurer deducts from premiums or from the account value to provide the death benefit and to cover administration and distribution costs. MoneySense (MAS) notes of universal life that some insurers charge a monthly fee for coverage, usually rising with age, along with administration fees, and that the policy lapses once the account's cash value falls to zero unless premiums are topped up (updated 28 Sep 2026). The LIA's consumer guide likewise says that the cost of coverage generally increases with age (May 2020).

This site lists no product's specific rates. The table below explains only the types of charge and how to read them; specific values, terms and ceilings are for the product summary and policy contract to say.

How cost of insurance (COI) is calculated

COI is the "price" paid for the death benefit and is calculated on the net amount at risk: net amount at risk = death benefit − account value, and COI = net amount at risk × cost of insurance rate. A variable universal life prospectus filed with the U.S. SEC gives the same definition: the net amount at risk is the difference between the death benefit and the policy value, and COI is deducted monthly at a rate per thousand of net amount at risk; the rate varies with sex, age, risk class, sum assured and policy year, and the policy states a guaranteed maximum rate, with the current rate not above that ceiling (Penn Insurance and Annuity Company, 1 May 2025). That product is not an IUL, but the logic of charging COI is the same.

This has three implications. First, where the death benefit is a fixed sum assured, the higher the account value, the smaller the net amount at risk and the lower the COI; when the account value grows slowly, COI takes a heavier share. Second, the cost of insurance rate usually rises with attained age, so deductions increase year by year even if the net amount at risk stays the same. Third, underwriting results affect the rate: the outcomes listed in the LIA underwriting guide include standard terms, loading or exclusions, deferment and decline (Apr 2024), and in universal life a loading may appear as a higher cost of insurance rate, as the underwriting notice provides. Products also define the death benefit differently: some pay a fixed sum assured, so the net amount at risk falls as the account value grows; others pay the sum assured plus the account value, so the net amount at risk stays roughly constant.

When index interest is 0%, does COI weigh more?

The table below compares the account value over three years in two scenarios. Assumptions: the death benefit is fixed at 1,000,000, the initial account value is 200,000, the cost of insurance rate is fixed at 3 currency units per thousand of net amount at risk per year, and the policy charge is 600 a year. Real rates rise with age year by year; a fixed rate is used here to isolate the effect of the account value. Illustrative only, not a quote and not any product's rates.

In Year 3, COI in the 0% scenario (2,418) is higher than in the +8% scenario (2,319), and after three years the account values differ by 51,354. Each individual deduction is small, but with no index interest to offset it, the deductions keep eroding the same account base and, together with rates that rise with age, the effect accumulates. This is also why a 0% floor cannot be understood as "the account will not shrink".

Maximum guaranteed charges and current charges: why there are two scales

The LIA illustration guidelines (MU 22/24, issued 7 Jun 2024; the clause numbers below are the same as in the 2018 edition) set the following charge-related requirements for illustrations of individual life policies in Singapore:

The guideline appendix defines distribution costs to include cash paid to sales personnel (such as commission and bonuses) as well as the cost of non-cash benefits and services, on a basis determined by the actuary under the appendix. It is a pricing-level disclosure and is not the same as any single deduction in the account. Specific figures are for the product's benefit illustration and product summary to say. If the guaranteed column shows that the policy is expected to lapse before a certain age, see Will an IUL lapse on its own for what that means.

Surrender charge and surrender value

Surrender value is usually the account value less surrender charges and outstanding loans. The LIA's illustration template states in its notes that early termination of a policy usually carries a high cost and that the amount received on surrender may be zero or less than the total premiums paid (MU 22/24, Appendix IV(d)). The causes of this gap include the premium charge, early-year policy charges, COI and surrender charges.

The term of the surrender charge varies by product. The examples on public pages illustrate types only: a Manulife press release says one of its products has no upfront charge, that administration charges stop after the 10th policy year and that there is no surrender charge from the 15th policy year (per the press release, republished by Hubbis, 21 Aug 2026); a Great Eastern product page warns that early surrender may return only part, or less than the premiums paid (17 Aug 2026). These are companies' descriptions of their own products and do not constitute a comparison.

Loyalty crediting rate: a refund, or an additional crediting rate

A loyalty crediting rate is, in contract terms, usually an additional crediting rate added after a number of years held, not a refund of any charge. In economic effect it raises the account's crediting rate over long holding periods and can partly offset long-term charges, but whether it is guaranteed, from which year it starts, whether it applies to the fixed account or the index account and whether it is kept after a change of life assured or a withdrawal all vary by contract.

What happens when the account cannot cover charges, and a checklist

When the account value or cash value is insufficient to cover the charges for the period, the policy faces the risk of lapse. LIA guidance explains that the premium grace period is generally about 30 days, during which the policy remains in force, and that if the policy has enough cash value the insurer may advance the premium through an automatic premium loan (May 2020). For details see Will an IUL lapse on its own and Policy loans and withdrawals.

1. Check the charges table line by line: basis, frequency, term and whether there is a ceiling.
2. What the maximum guaranteed charges and the current charges are, and whether both illustration scales are shown side by side.
3. How the cost of insurance rate table changes with attained age and how an underwriting loading appears.
4. The death benefit formula, and from it how the net amount at risk moves with account value.
5. The surrender charge table, and a comparison of surrender value with cumulative premiums for each of the first 10 years.
6. From which year the loyalty crediting rate starts, whether it is guaranteed and what conditions attach.
7. On which pages of the illustration distribution costs and total deductions appear.
8. How the insurer gives notice when charges are adjusted.

If you would like a benefit illustration or product summary interpreted in light of your own circumstances, you can register your needs through the contact details on this site.