Cost of Insurance - COI

Maybe we can jiggle a bit with our cost of insurance rates.



1870 - Book - Cost of Insurance: A Treatise Upon the Cost of Life Insurance, Together with an Arithmetical Explanation of the Computation of Premiums and Valuation of Policies to which are Added Tables of Net Premiums, Cost of Insurance for the Use of Life Insurance Agents - by Nathan Willey

We then developed a risk cost for the term portion of the universal life insurance product.




State Georgia Tabular Cost of Insurance means the net single premium at the beginning of a policy year for one-year term insurance in the amount of the guaranteed death benefit in that policy year.

Birny Birnbaum - (CEJ): 

  • I think this can be done in a fairly transparent way.  The same way that you can do a …even easier than what you can do with a Surrender Charge.
  • So, for example, if there's a Cost of Insurance charge, what's the initial "Cost of Insurance Charge" and can it change and are there any limits to what the changes can be.  That's useful information for a consumer.
  • If I look and see that … here's the "Cost of Insurance" is, but this fee can go up without limit … that's useful information compared to a product where the "Cost of Insurance" can go up, but it's capped at 2 times the initial charge for example.
  • So, we think it's useful information and we think providing it in a tabular format is consistent with some of the advances that we’ve seen in consumer disclosure.

 Michael Lovendusky - (ACLI): 

  • ..with regard to Cost of Insurance, the provisions that appear in the policies themselves today are already simplified descriptions of that rely upon actuarial principles, rely upon ceilings and floors, and rely upon the approval of regulators for the propriety and their reliability by consumers.
  • Those simple expressions in the insurance policies themselves are hotly litigated today.
  • So, the ACLI recommends that you steer away from Cost of Insurance elements in the Cost Information, other than to acknowledge that there is a Cost of Insurance

    • Cap, basic information might be agreeable."

Teresa Winer - (Georgia): 

  • The Cost of Insurance Charge is a rate and that's applied to the Insurance Coverage, which is a Net Amount At Risk, which varies depending on your Cash Value Amount and how much you've deposited. 
  • So, you've got a <COI> rate, but then it depends on, y'know, your Cash Value as well. 
  • It's kind of a circular thing and it gets so complicated because it's being deducted from a Cash Value account, but as your Cash Value grows it gets smaller.
  • The way that it's actually used to get the Cost of Insurance Amount is that they just have to take the rate and then multiply is by something else …and they are not going to know what that is. 
  • So, that's what I'm saying… it gets so …. It's interesting, but the value of what you are going to be charged is not going to come out of that…. It gets really complicated.

Birny Birnbaum - (CEJ):

  • So, if the information that you provide here is the initial cost of insurance, what percent of the cash value and it can increase up to 3% of the cash Value. 
  • Then that is information that can be used to compare across companies…. 
  • So, the comments that Mr. Lovendusky made were basically contradictory.
    • On the one hand, he talked about how complicated this stuff is..
    • but at the end he then said, well, we could give the initial and then what the cap is. 
  • And that is exactly what CEJ had suggested for this particular provision.
    • Which is what am I starting with and what can this thing go up to.
      • That is in fact useful information to the consumer.  What am I looking for ….
  • And this will not only, not create litigation, because this is what's in the policy form, but it will prevent litigation, because it will be much more transparent to the consumer… what the possibility is that the consumer is facing. 
  • So, I can admit that I am completely baffled why Industry, which has been sued over this issue would not try to make this much more transparent up front to avoid the problems it is now encountering.

2019/09/17 - NAIC LIIIWG  Conference Call <Bonk>