IUL Problems When You Are Older: Rising COI and Late Lapses

Written and reviewed by Hans Goldstein, licensed insurance producer, NPN 20602398 · CA Insurance License #4273294
Last reviewed October 3, 2026 · Published October 3, 2026

Why the cost of insurance climbs

Every month an IUL deducts a cost of insurance (COI) charge: the net amount at risk (death benefit minus cash value) divided by 1,000, times a rate for your attained age. The rate tracks mortality, and mortality rises steeply after 65. The table below is the 2017 CSO table that sets guaranteed maximum COI on most new policies.

2017 CSO mortality, male nonsmoker (the basis for guaranteed maximum COI on most new policies)

Source: Society of Actuaries, 2017 Loaded CSO, Nonsmoker Male ANB (table 3291). Current (non-guaranteed) charges are usually below these, but the shape is the same.

Rule of thumb: the rate roughly doubles every 6 to 7 years from 65 to 90. On $500,000 of net amount at risk, that is about $3,980 a year at 65, $12,120 at 75 and $41,170 at 85 at these guaranteed maximum rates. Current charges are usually lower, but the shape is the same, and the insurer can move current charges toward the guaranteed maximum within the contract.

How underfunded IULs lapse late

A policy sold on the lowest premium for the largest death benefit has little cash value, so the amount at risk stays large just as the rate climbs. Cash value that looked fine at 55 can be drained by 80. This is not new: universal life sold in the 1980s and 1990s was illustrated at 10 to 12% and funded at minimum premiums, and when rates fell many owners faced large catch-up premiums or lapses in their 70s and 80s. Several large UL blocks later saw COI increases and class-action settlements.

Here is the model for a 65-year-old paying $10,000 a year for 15 years on a large, target-funded death benefit:

In this model the target-funded policy lapses at 93 even on the illustrated 6% column, at 86 on the midpoint, and at 82 on the guaranteed column. A lapse with a loan outstanding is worse than a lapse: a lapse or surrender with a loan outstanding can create taxable income.

Where your premium goes

In this model a male 45 paying $10,000 a year loses about 15% of the first 10 years of premium to charges when the policy is max-funded, and about 22% when the same premium buys three times the death benefit. The surrender charge is extra: in year 1 the cash surrender value is about $4,245 of $10,000 (max-funded) and $0 (target-funded), which is why early cash value can feel like half the premium disappeared. A common rule of thumb is that roughly half of early premium goes to charges; in this model that is close for year-one surrender value, and too high for the ongoing charges in a well-funded design.

Hypothetical. Not an illustration of any specific policy. Not a quote. Model on current (non-guaranteed) charges: premium load 10% (years 1-10) then 5%, $10 a month fee, per-$1,000 charge for 10 years, current COI at 80% of 2017 CSO select rates, 6% illustrated crediting. Guaranteed maximum charges are higher. Ask your insurer for the policy's actual charge schedule.

The cost of insurance ladder

Read it like a ladder. The insurance part of the policy gets more expensive every year: the guaranteed maximum rate is about $8 per $1,000 at 65, $24 at 75 and $82 at 85 (2017 CSO). Each step is small until the late 70s, then the ladder curves up sharply. In a well-funded policy the cash value grows faster than the charges, so the policy carries itself with no extra premium (green). In an underfunded policy the charges eat the cash value from the inside, and the owner must pay more or the policy lapses (red, at 79 here). Real results usually land between those lines, which is why an in-force illustration every few years matters.

Hypothetical. Not an illustration of any specific policy. Not a quote. Male 45, preferred nonsmoker. Charges per the stated model; COI is charged on the net amount at risk (death benefit minus cash value), so the dollar cost depends on both the rate and how much coverage the cash value has not yet replaced. Source for rates: Society of Actuaries, 2017 CSO table 3291.

The age-65 rule

Why the math is weak at 65:

• Surrender charges run 10 to 15 years, to about age 75 to 80.
• The amount at risk is charged at rates about 3 times higher by 75 and 10 times higher by 85.
• Even max-funded at a steady 6% (an optimistic flat rate), the model's surrender value return is about 4.1% a year to age 85, before any cap cut or charge increase. Target-funded at 65 loses money and lapses.
• Underwriting at 65 often lands a lower health class, which raises COI further.

For accumulation at 65, a multi-year guaranteed annuity is the usual fit: a fixed rate for the term, no cost of insurance and no medical underwriting. Today's rates are on the MYGA rates page.

When an IUL or GUL at 65 still fits

The rule is about cash value, not about life insurance. At 65, permanent coverage can still be the right tool when the goal is the death benefit:

• Estate liquidity or an ILIT, usually with guaranteed universal life or a no-lapse IUL (ILIT guide).
• Second-to-die coverage on a couple for estate tax at the second death or a legacy (survivorship life).
• A 1035 exchange of an old, underperforming UL into a better-priced chassis, with an in-force illustration and California replacement rules.
• Coverage chosen for a chronic illness acceleration benefit, with the discount stated plainly.
• Single-premium or short-pay legacy designs where the death benefit is the point.

What to do this week if you own an older or thinly funded IUL

Options exist even late: more premium, a lower face, a switch to Option A, a reduced paid-up policy, or a 1035 exchange. Which one fits depends on the numbers. See should I surrender my IUL?

Own an IUL you are not sure about?

Send your annual statement or an in-force illustration. Within one business day Hans tells you the age it lapses on the guaranteed and illustrated-scale columns, and the cheapest fix.

Hans never contacts your insurer for you. The request letter for the in-force illustration is on the policy review page.

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Rather talk it through? Or book 15 minutes on Hans’s calendar, or call 213-414-2808.

Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer

Frequently asked questions

Sources

1. Society of Actuaries, 2017 Loaded CSO, Nonsmoker Male ANB (table 3291)
2. 26 U.S.C. §7702A (modified endowment contracts), Cornell LII
3. 26 U.S.C. §72 (annuities and certain proceeds), Cornell LII
4. NAIC Actuarial Guideline 49-A (IUL illustrations)