Each month, a universal life insurer deducts a charge from the policy's cash value to cover the pure mortality cost of the death benefit. This deduction is called the:

Why A is correct

Universal life policies deduct a monthly cost of insurance (COI) charge from the cash value, which covers the pure mortality risk of providing the death benefit, along with expense charges. Because the COI is based on the insured's current age and the face amount, it rises as the insured ages. If the cash value is insufficient to cover the COI and expenses, the policy may lapse unless additional premiums are paid. This structure is what makes universal life a flexible-premium, interest-sensitive product, distinct from the level-premium guarantees of traditional whole life.

Why the other options are wrong

• B) A surrender charge is a fee deducted when a policy is surrendered early, not a monthly charge for mortality coverage.
• C) Premium tax is a tax the insurer pays on premiums collected, not a monthly deduction for mortality cost.
• D) Dividend offset relates to how participating policies credit dividends; universal life is a nonparticipating product in this context.

Memory hook

UL's monthly bill = COI plus expenses, drawn straight from the cash value tank.