Mortality Charges In ULIP Investment - A Detailed Guide
Mortality Charge is the bone of contention in ULIPs because many consider it primarily an investment vehicle. However, the fact is that mortality charges are part of any insurance product and it is easy to see why. The insurer provides a life cover which is the sum assured payable to the nominee in case of death of the insured. The mortality charges are for providing the life cover under the policy. It is for this reason that an amount is deducted from the fund value as mortality charge.
Let's understand this with the help of an example. A 35-year old Mr X purchases a ULIP with an annual premium of ` 100,000 and a sum assured of ` 10,00,000. The death benefit payable in this policy is higher of sum assured or fund value. In case of unfortunate death of Mr X in the 4th year of purchasing the policy, the amount receivable by the nominee is higher of the fund value which is assumed to have grown to ` 5.5 lakhs or sum assured of ` 10 lakhs. In this example, the nominee will receive ` 10 lakhs as the death benefit. This risk of providing life cover is borne by the insurer, and mortality charges are deducted towards covering this risk.
How is Mortality Charge calculated?
Mortality Charge depends on factors such as age, amount of coverage (sum assured) of the policyholder, gender, smoking habits, health factors, etc. and is deducted on a monthly basis. It is generally lower for younger & healthier individuals. It increases, with the advancement of the policyholder's age.
The mortality rate (as on attained age) is per ` 1,000 of the cover or the sum at risk. It is calculated monthly based on the following formula :
Mortality charge = mortality rate (for the attained age) x sum at risk/1000 x 1/12
What if you get back the entire Mortality Charge?
Looking at customer's expectation from a ULIP, Bajaj Allianz Life Insurance has pioneered the concept of Return of Mortality Charges (RoMC) with its recently launched products Bajaj Allianz Life Goal Assure & Bajaj Allianz Life Goal Based Savings. It makes ULIPs more investor-friendly and increases the return on maturity.
With this feature, the policyholder gets back all the mortality charge deducted over the course of the policy term at the time of maturity. This amount is added to the Fund Value at maturity. The only factor that the policyholder needs to ensure is that the policy is not surrendered or discontinued and all the premiums have been paid on time.
It is easy to see that mortality charge is an integral part of any insurance product. At the same time, features like RoMC enhance the benefit for the policyholders and help them to reach their life goals faster.
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