The Actuarial Concept of Mortality Drag in Universal Life Insurance

In Universal Life (UL) and Indexed Universal Life (IUL) policies, **Mortality Drag** is an important actuarial concept that significantly impacts the long-term performance and growth of the policy’s cash value. It represents the ongoing cost of providing the death benefit.

What is Mortality Drag?

Mortality drag refers to the cumulative reduction in the policy’s cash value growth caused by the monthly deduction of the Cost of Insurance (COI) and administrative fees. Because the COI charge increases exponentially as the insured ages, the “drag” on the cash value accelerates over time.

• The Impact: In the early years, the cash value growth often outpaces the COI, leading to strong accumulation. In later years (age 75+), the COI can become so large that it consumes most, if not all, of the interest or investment return, slowing down or even reversing the cash value growth.
• Mitigation: Policyholders must overfund the policy early to create a large enough cash value base that the interest credited (even a small percentage) is sufficient to absorb the large COI charges in old age.

Disclaimer: This content is for informational purposes only and is not financial or legal advice. Policy illustrations should always be reviewed to understand the projection of the COI charge in the later years.