Life Universal Life, Riders & Group Life question: level basis cost

LifeUniversal Life, Riders & Group Life

Gavin, 45, is choosing the cost of insurance basis for a new universal life policy with $250,000 of net amount at risk. In the first year, the yearly renewable term rate is $1.80 per $1,000 and the level cost of insurance rate is $4.20 per $1,000. How much more will the level basis cost in the first year?

A $0
B $450
C $600
D $1,050

Show the answer and explanation

Answer: C. $600

Level basis: 250 × $4.20 = $1,050. Yearly renewable term basis: 250 × $1.80 = $450. Difference: $600. $1,050 and $450 are each basis on its own, and $0 assumes the two bases cost the same. Yearly renewable term charges start low and rise every year, while level charges start higher and stay level, so the level basis usually costs less over a long holding period. Source: CISRO LLQP Curriculum (May 2015; current as at 12 Oct 2026), Life component 2.1 (difference between YRT and LCOI/T-100 mortality costing in a universal life product); CISRO LLQP description (2010), objective 12.8; arithmetic (as at 12 Oct 2026).

Common mistake

Judging the two cost bases only on first-year cost.

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Amara, 44, owns a universal life policy with a $20,000 account value at the start of the policy year. She deposits $3,000 at the start of the year. For simplicity, assume the insurer then deducts a $900 cost of insurance charge and a $120 administration fee, and the remaining balance earns 4% for the year. What is her account value at year-end?Jonas, 50, has a universal life policy with a level death benefit of $500,000 and an account value of $80,000. Under the level option, the account value forms part of the death benefit. His yearly renewable term cost of insurance this year is $2.50 per $1,000 of net amount at risk. What is this year's cost of insurance charge?Farid, 39, earns $70,000 a year and has group life equal to twice his salary, plus $60,000 of non-registered savings. If he dies, his wife Leila, who nets $30,000 a year, needs $48,000 a year after tax for the family. Other needs: final expenses $25,000, mortgage $310,000, other debts $18,000 and an education fund of $80,000. Capital earns 4% and only the income is spent. How much additional coverage does Farid need?

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Original study material mapped to the public CISRO curriculum; not a real test question.Not affiliated with CISRO, CCIR or any provincial insurance regulator. Verify figures and rules against current guidance before relying on them.