What are Mortality Charges in ULIP?

Introduction

Every kind of life insurance plan offers a cover on the life of the insured person and pays out financial benefits in case of their death. A Unit Linked Insurance Plan (ULIP) is no different. It is also fundamentally a life insurance plan. Additionally, it offers the benefits of market-linked investments too.

Life insurance providers take on a certain degree of risk when they offer you a life cover. To provide this cover, they levy mortality charges, which cover the mortality risk they incur. Since Unit Linked Insurance Plans also offer life insurance coverage, you will have to pay ULIP mortality charges if you buy such a policy.

How does a Unit Linked Insurance Plan work?

A Unit Linked Insurance Plan gives you the advantage of a life cover as well as market-linked investments. When you buy a ULIP, you need to pay premiums to the insurance provider as per the terms and conditions of the policy.

In return, the insurer gives you life coverage, so your nominees receive death benefits in case something happens to you. Furthermore, you can also invest in market-linked funds like equity funds and debt funds. The gains from these investments are paid out on maturity.

In addition to these things, you should know that there are many fees and charges levied for ULIPs. Foremost among them are ULIP mortality charges.

What are Mortality Charges in ULIPs?

When you purchase a Unit Linked Insurance Plan, the insurer levies fees to cover the risk associated with offering you a life cover. These fees are known as mortality charges. Before you buy your ULIP, you can check the policy document and the terms and conditions of the plan to understand how your insurance provider levies mortality charges in the ULIPs they issue.

The ULIP mortality charges are not paid out of pocket. Your insurance provider will typically deduct it from your ULIP fund value each month, as and when the fee is due. Nevertheless, knowing this information can make financial planning easier, since you will know the outlay upfront 

Factors that Affect ULIP Mortality Charges

You may also be wondering how to carry out ULIP mortality charges calculation. To understand this, you need to first be aware of the factors that influence the mortality charges levied by your insurance provider. Here is a preview of what these charges are based on.

• Your Age

Your age is directly tied to your mortality rate. So, if you are younger, the mortality charges in ULIPs tend to be lower.

• The Amount of Coverage

The extent of coverage also plays a key role in ULIP mortality charges calculation. The larger the coverage, the greater the risk for the insurer. So, the mortality charges will be higher.

• Your Overall Health

If your overall health is good, your insurer takes on lower mortality risk. This leads to more economical mortality charges.

Based on the above factors, insurance providers create a table of standard annual mortality charges. These charges are determined using the average mortality rates in humans according to age and health conditions.

How are ULIP Mortality Charges Calculated?

Now that you know more about the factors that influence mortality charges in your ULIP, let us take a closer look at the formula used in ULIP mortality charges calculation. Here is how it goes.

Here are some points to note regarding this formula.

 

• The sum at risk is essentially the sum assured or the coverage offered by the Unit Linked Insurance Plan.

• The mortality charges are calculated per Rs. 1,000 of the sum at risk, which is why you divide by 1,000.

• The mortality rates are determined by actuaries based on the factors discussed earlier, such as age and other aspects.

As you age, the mortality rate also tends to increase. Consequently, the total mortality charges also rise correspondingly, as you can deduce from the above formula.

Return of Mortality Charges (RoMC) in ULIPs

The levy of mortality charges in ULIPs could deter many individuals from choosing this kind of life cover for their future. To circumvent this issue, insurers have introduced a feature known as the Return of Mortality Charges (RoMC) in ULIPs.

This feature comes into effect if the insured person survives till the maturity of the Unit Linked Insurance Plan. In that case, the mortality charges deducted during the plan’s tenure are returned to the policyholder. They are included in the fund value paid out at maturity.

 

The benefits of the RoMC feature are subject to the following conditions.

 

• The policy should not have been surrendered.

• All the premiums should have been paid on time.

• The insured person should have survived up to the maturity of the plan.

Conclusion

Despite the ULIP mortality charges, the benefits from these plans are much higher in comparison, since they offer market linked returns. Additionally, with the RoMC feature, you can also get your total mortality charges back at maturity. This effectively reduces your net outlay to zero.

If the Return of Mortality Charges sounds like a feature you want to take advantage of, you can head to Bajaj Markets right away. Then, you can check out the ULIPs available and choose the one that best meets your needs.