Life Universal Life, Riders & Group Life question: year's cost of insurance charge

LifeUniversal Life, Riders & Group Life

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?

A $200
B $1,050
C $1,250
D $1,450

Show the answer and explanation

Answer: B. $1,050

Under a level death benefit, the insurer's own risk is the face amount less the account value: $500,000 − $80,000 = $420,000. The charge is 420 × $2.50 = $1,050. $1,250 charges on the full face, ignoring that the account value already funds part of the benefit; $1,450 treats the policy as paying face plus account value; $200 charges on the account value. As the account grows, the net amount at risk under the level option shrinks. Source: CISRO LLQP Curriculum (May 2015; current as at 12 Oct 2026), Life component 2.1 (how universal life works; difference between YRT and level cost of insurance in a UL product); net-amount-at-risk pricing is standard industry practice (as at 12 Oct 2026).

Common mistake

Charging the cost of insurance on the full face amount under a level death benefit.

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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?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?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.