It is difficult to compare the cost of one life insurance policy against another. Simply comparing the premiums is not sufficient. The policies may be very different in their features, and the cash payments to and from the insurance company take place over many years. To determine the true cost of a policy, there must be an adjustment for the time value of money. In other words, if you pay (or receive) money some time in the future, it is not worth the same amount as money paid (or received) today. Any comparison method should take this into account.

Most states have now adopted the interest adjusted index method of cost disclosure as recommended by the National Association of Insurance Commissioners (NAIC) for comparing the cost of life insurance policies. It adjusts the payments based on when they are received and so allows for better comparisons among policies. Insurance ledger statements now show two such indexes. One index considers the net payments. The other index, known as the net surrender cost index, compares the cost if the policy is surrendered. If you want to compare similar policies (for example, a whole life from one company against a whole life from a competitor) look at the indexes for the two policies. The one with the lower cost indexes is the least expensive of the two.