Mortality charges in a ULIP (Unit Linked Insurance Plan) represent the cost of providing life insurance coverage within the investment component of the plan. Basically, it is the charge for the Life Insurance cover provided by the Insurance company.

What is a Mortality Charge in ULIP?

A mortality charge in a Unit Linked Insurance Plan (ULIP) is a fee imposed by the insurance company to cover the risk associated with providing life insurance protection.

This charge funds the life insurance benefit, which guarantees a sum assured payout to your beneficiaries if you pass away during the policy's duration.

In simple terms, it’s the cost for the assurance that your loved ones will have financial security in case of your untimely demise during the policy period.

When selecting a ULIP, it’s important to consider both the sum assured and the mortality charges. Comparing investment plans from different insurers will help you find one that offers a good balance of coverage and cost-effectiveness.

In case of a Term Plan, Mortality charge is nothing but your premium that you pay for the sum assured.

Mortality Charge calculation in ULIP

The mortality charge in ULIP covers the risk to the insurer based on the insured's mortality rate.

1. Mortality Charges Formula :

   Monthly Mortality Charge = (Mortality Rate x Sum at Risk) / (1000 x 12)
   Explanation:
   • Mortality Rate: Derived from the Indian Assured Life Mortality Table by the Institute of Actuaries of India.
   • Sum at Risk: Varies depending on the ULIP type.

2. Variations in Sum at Risk Across ULIP Types

   Type I ULIP: (common ULIP)
   • Death Benefit: Higher of Sum Assured or Fund Value.
   • Sum at Risk: Decreases as Fund Value increases.
   Type II ULIP: (not a common ULIP)
   • Death Benefit: Sum Assured + Fund Value.
   • Sum at Risk: Constant, equals the Sum Assured.

Let’s understand how is mortality charges calculated in ULIP with an example. Let's say Mr.X, a 35 year old male, chooses to invest in a ULIP with a premium of Rs. 50,000 per year for 5 year Lock-in.

Mortality charges = (Mortality rate (for his age) × Sum at Risk ) * 1/12

Let’s assume that the mortality rate is Rs. 1.68 for every Rs. 1000 sum at risk. If the sum assured for a ULIP is Rs. 5 Lakh, 

For the first month of first year :

Sum at Risk = Sum Assured - Fund Value = Rs. 5,00,000 - Rs. 50,000 = Rs. 4,50,000

Mortality charges = (1.68 × 4,50,000/1000) × 1/12 = Rs. 63

In this scenario, the monthly mortality charge for the ULIP would be Rs. 63. Moreover, the mortality charges keep reducing over time as your fund value increases.

NOTE:

• This is a basic formula. The actual calculation may include additional factors or a different structure, depending on the insurer.
• Mortality rates are set by the IRDAI and are based on statistical data regarding mortality risks for various age groups

Key Factors for Mortality Charges in ULIP

Sum at Risk: This is the difference between the sum assured (death benefit) and the fund value (accumulated investment amount). As the fund value increases, the sum at risk decreases, which results in lower mortality charges over time. (Mortality rate will be the same, unless it is changed by the insurer)

Age: Younger individuals usually face lower mortality charges compared to older individuals, as they have a lower risk of death.

Policy Type: There are two main types of ULIPs:

• Type I ULIP (common): The death benefit is the higher of the sum assured and the fund value. In this case, the sum at risk decreases as the fund value grows.
• Type II ULIP (not common): The death benefit is the sum assured plus the fund value. The sum at risk remains the same throughout the policy term.

Gender: Women generally have lower mortality rates than men, leading to slightly lower mortality charges (with the exception of ages 0-9

Sum Assured: A higher sum assured increases the insurer's risk, potentially leading to higher mortality charges.

Return of Mortality Charges in ULIP

Return of Mortality Charges (ROMC) is a feature offered by some Unit Linked Insurance Plans (ULIPs) that allows you to get back the mortality charges you have paid throughout the policy term.

1. Benefits of ROMC

   • Increased Maturity Corpus: By getting the mortality charges back, the total amount you receive at maturity increases.
   • Rewards Long-Term Investment: ROMC incentivizes staying invested throughout the policy term.
   • Most of the cases, ROMC is given post the lock-in period and time value of the charges returned will be low, But getting something is defintely better than nothing. 

2. Criteria for Return of Mortality Charges in ULIP

   Some key factors that influence the ROMC eligibility are listed below:
   • Minimum Premium: You may need to pay a minimum premium amount to be eligible for ROMC.
   • Policyholder Survival: You must survive through the policy term up to its maturity. 
   • Premium Payment: All the premiums must have been paid in due course to get ROMC benefit. Missing premium payments can disqualify you from ROMC.
   • Policy Not Surrendered: The policy cannot have been surrendered before maturity. Surrendering a ULIP before maturity terminates the plan and you will not be eligible for ROMC.

NOTE: 

While above criteria is in general, you will have to go through the policy for the specifics or contact us, we will help you with the details of the plan.

Not all ULIPs offer ROMC. It is an optional feature, so you will need to check with the specific ULIP plan you are considering.

How to find out about ROMC?

You can learn about the Return of Maturity Charges (ROMC) benefit in our best ULIP plan, or check the following sources: 

• Read the ULIP Policy Brochure: The brochure details the features and benefits of the plan, including ROMC eligibility and the specific criteria mentioned above.
• Talk to a Financial Advisor: A financial advisor can explain the ROMC feature of specific ULIP plans and help you choose one that aligns with your needs, considering factors like ROMC eligibility and your financial goals. You can consider us, contact us

Summary:

Mortality charges in a Life Insurance are the cost of providing life insurance coverage by the policy. These charges vary based on factors like age, health, and coverage amount. Understanding and managing these charges is crucial for optimising investment returns in ULIPs while ensuring adequate life cover.

Thanks,

Honvest Team.