The Net Cost of Pure Insurance, or NCPI, is a very important feature of a whole life insurance policy, as it directly impacts the Adjusted Cost Basis (ACB), which in turn impacts the amount of money you can withdraw from your policy, or borrow against your policy (policy loans) without triggering any taxes.
I won’t go into many details about the ACB, as there is a definition for that concept. The net cost of pure insurance is one of the big factors in drinving the ACB down, which is one of the biggest reasons why the Canadian application of the infinite banking concept, and the American application, differ so much.
The older the life insured gets, the higher the risk to the insurance company. Since the insurance company is in the business of managing risks, if the life insured is older, and logically closer to his/her demise, the insurance company will charge a higher cost for the coverage. Every year, the NCPI goes up. Slowly… but surely. And as the life insured get past 60, the cost increases becomes more dramatic.