Mortality Charges in ULIP Investment

Before we delve deeper, let us first address the question as to what is mortality charge in ULIP.? Mortality charges are an important component of life insurance. In a life insurance policy, the insurance company provides you with a life cover. In case of the death of the insured during the term of the policy, a death benefit is payable to the nominee. This death benefit also called the sum assured, is the risk that the insurer takes to offer you the cover. This risk is covered through mortality charges, which are borne by the policyholder. The ULIP mortality charges are deducted from the fund value³.

 

How Is The Mortality Charge Calculated?

 

Now that we understand what are mortality charges in ULIP, let us take a look at how this charge is calculated. A lot of factors are considered, like the policy sum assured, the insured’s age, gender, lifestyle habits, etc.

Mortality Charge can be calculated as the applicable rate of mortality x life insurance coverage (or the sum at risk)] / [1000 x 12]¹.

To understand ULIP mortality charges calculation, let us take a look at this example.

Ravi Mehta is a 30-year-old bank manager. His ULIP, with a sum assured of INR 1 crore, has a tenure of 20 years. Ravi pays a yearly premium of certain amount. The mortality charges would be deducted over the 20-year policy term from the fund value of the ULIP.

 

Return of Mortality Charges (RoMC)

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The mortality charges, as explained earlier, are borne by the policyholder. However, in order to increase the ULIP benefits, the idea of retrieving these charges was pioneered by Bajaj Allianz Life Insurance⁶.

Under Return of Mortality Charges, at the end of the policy term, the ULIP mortality charges that have been deducted so far (all through the term) are added to the fund value.

Simply put, at the end of the policy tenure, the mortality charges are returned to the policyholder. It’s important to note that in order to receive the RoMC benefit, the policy needs to be active, which means that it can neither be discontinued nor surrendered. Also, all the premiums need to have been duly paid.

This revolutionary step, RoMC, that is return of mortality charges in ULIP, is an incentive that you receive from your insurer for investing in a disciplined and long-term relationship with the company through the ULIP.

 

How Does the Return On Mortality Charge work in ULIP?

 

Combining below two major benefits under the umbrella of one policy is a reason for ULIPs’ high popularity. The RoMC advantage is a feature that makes ULIPs all the more lucrative. Let us see how this feature works.

1. Return of Mortality Charges: Setting new benchmarks

   Mortality charges in ULIPs are charged by the insurance company against the risk it takes in covering you. Through RoMC, therefore, at the time of maturity, you get an additional corpus.

2. Investor-friendly feature

   Return of Mortality Charges may also be an investor-friendly feature. In case of ULIPs, the mortality charges are expressed as per Rs. 1,000/- sum at risk for each age. Formula for calculation is mentioned in the article above. You need to understand ULIP mortality charges calculation if you want to know how RoMC can create a considerable difference to your overall portfolio by refunding the mortality charges as it enhances the fund value. This re-engineering of ULIPs surely enhances customer benefit.

 

Factors That Determine Mortality Charges

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A number of factors come into play when specifying the mortality changes. ULIPs issuing life insurance companies go through actuarial tables, sum assured, and the age and gender of the policyholder in order to calculate the mortality charges. Let’s see how:

1. Sum Assured

   :

   The higher the sum assured, the higher may be the mortality rate^².

2. Age

   Typically, young adults may enjoy a lower mortality rate. Higher the age, the higher may be the mortality rate as well^².

3. Risk to the overall health of the insured

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   A healthy individual typically is a low-risk customer as compared to someone who suffers from a serious illness. Low risk may mean lower mortality charges^².

4. Gender

   ULIP mortality charges may also be affected by the policyholder’s gender. The mortality charges for a man may usually be higher than that of a woman of the same age. Data confirms that in 2021, the rate of mortality for women was 185.91 for every 1000 adult women as compared to that of men at 253.83 for every 1000 adult men⁵.

5. Life expectancy ratio

   ⁴:

   There is an inverse ratio between life expectancy and mortality charges. So, the higher the life expectancy, the chances of death may be lower and so lower might be the mortality charges as well.

 

Conclusion:

 

To add to the list of benefits of ULIPS, Return of Mortality Charges in ULIPs, add to the fund value that you receive at the end of the policy term

Check out the various ULIP options that you have and choose a new-age plan that allows you RoMc and also meets your financial requirements.

 

FAQs

 

1. How are mortality charges calculated in ULIPs?

   Mortality charges in ULIP may depend on a number of factors such as the age of the insured, their general health, their lifestyle habits, their gender, life expectancy and also the sum assured that they choose.

2. Why are mortality charges deducted from ULIP premiums?

   When an insurance company covers your life, it takes a financial risk. To cover this risk, you, as the policyholder, need to pay a charge. The mortality charges are, therefore, borne by policyholder and are deducted from premiums paid by the policyholder. In ULIPs, an equal number of units are cancelled/ subtracted from the fund value².

Reference:

1. https://www.personalfinanceplan.in/ulip-term-plan-mortality-charges/

2. https://economictimes.indiatimes.com/wealth/insure/5-smart-things-to-know-about-mortality-charges/articleshow/40769003.cms?from=mdr

3. https://www.bajajallianzlife.com/life-insurance-guide/ulip/mortality-charges-in-ulip-investment.html

4. https://economictimes.indiatimes.com/wealth/insure/smart-things-to-know-about-the-mortality-charge/articleshow/16980145.cms?from=mdr

5. https://www.statista.com/statistics/976090/adult-mortality-rate-in-india-by-gender/#:~:text=Mortality%20rate%20in%20India%202021%2C%20by%20gender&text=In%202021%2C%20the%20mortality%20rate,1%2C000%20male%20adults%20in%20India.

6. https://www.livemint.com/Money/U2SIsrem4eHAhdWsosWjEM/A-ULIP-that-returns-mortality-costs-on-survival.html

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