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What are Mortality Charges in ULIP?

Mortality charges in ULIPs# represent fees imposed by the insurance company to secure the policyholder's life protection. The amount of mortality charges depends on factors such as your age, overall health and the amount of coverage.
 

Mortality charges are a major consideration for investors on the lookout for ULIPs#. The mortality rate figures are specified by the IRDAI, Insurance Regulatory and Development Authority of India, and all insurers use these figures for calculating the charge. 
 

These charges are designed to cover the expenses associated with mortality insurance, a fundamental component of ULIPs. This blog explains the meaning of mortality charges in ULIP, mortality formula, factors influencing these charges and some ways to reduce them.

Mortality Charges Meaning

When a person invests in a ULIP (Unit Linked Insurance Plan), the insurance company imposes a fee for providing life insurance coverage in case of their demise and to address various associated costs. 
 

This fee, commonly referred to as the mortality charge, is usually subtracted, along with other fees, from the policyholder's invested funds.
 

The premium paid in a ULIP is divided into two components. One part is designated for covering the risk to the policyholder's life, while the remaining portion is invested in market-linked2 products to facilitate wealth accumulation.

How are Mortality Charges Calculated?

The mortality charge is determined based on the sum at risk, which is the death benefit minus the current fund value. As the fund value of the policy increases over time, the mortality charge decreases. 
 

In simpler terms, the policy's fund value grows with time, resulting in a reduction in mortality charges. Mortality charges ensure guaranteed1 financial assistance to the nominee in case of the policyholder's unfortunate demise during the policy period.
 

The monthly mortality charges for any ULIP plan can be computed using the following mortality charges calculation formula:
 

Mortality charge = [Mortality rate (based on attained age) * Sum at Risk / 1000] * 1/12

Factors that Influence the Mortality Charges

Various factors influence mortality charges in ULIPs, and understanding these factors is essential for calculating them. Here is an overview of what these charges are based on:
 

  • Your age: Your age is directly linked to your mortality rate. Consequently, younger individuals typically incur lower mortality charges in ULIPs.

  • The amount of coverage: The extent of coverage also significantly impacts ULIP mortality charges calculation. A higher coverage amount represents a greater risk for the insurer, leading to higher mortality charges.

  • Your overall health: Your overall health status plays a pivotal role in determining mortality charges in the ULIPs. Good health reduces the insurer's mortality risk, resulting in more affordable mortality charges.

Considering these factors, insurance providers set a standardised annual mortality charges table. These charges are derived from average mortality rates based on age and health conditions among the general population.

How Can I Reduce the Mortality Charges?

 

 

While mortality charges are an essential expense, they can also substantially impact investment returns. Nevertheless, there exist some strategies to diminish mortality charges and enhance the overall returns on ULIP investments.
 

Here are several approaches that individuals can take to minimise mortality charges:
 

  1. Reduced Sum Assured

    The sum assured signifies the insurance coverage provided by the ULIP plan. Higher sum assured amounts correspond to elevated mortality charges. 
     

    Thus, one effective method to reduce mortality charges is to select a lower sum assured. However, you must ensure that the chosen sum assured adequately meets your needs. 

  2. Opt for a Prolonged Policy Term

    The policy term denotes the duration of the ULIP. Extending the policy term results in decreased mortality charges. Therefore, opt for a longer policy term to curtail mortality charges.

  3. Evaluate Policies Across Different Insurers

    Mortality charges can vary among insurers. Hence, you must compare ULIP policies from various insurers to identify the one with the lowest mortality charges. 
     

    This can be done through online research, consultation with a financial advisor, or the use of a comparison or aggregator website.

  4. Consider a Term Insurance Policy

    Term insurance plans offer pure insurance coverage without the need of an investment component. Moreover, mortality charges associated with term insurance policies are generally lower than those of ULIPs.
     

    Therefore, if your primary goal is insurance coverage, opting for a term insurance policy may be a more favourable choice.

Final Words

Mortality charges within life insurance represent fees imposed by the insurance company to secure the policyholder's life protection. It depends on factors such as your age, overall health and the amount of coverage.
 

Given the many charges associated with ULIPs, you can usually opt to maintain a ULIP policy for an extended duration to reap the market-linked returns2 and benefits. 
 

The Tata AIA ULIP plan provides a diverse range of investment choices with varying levels of risk – including high, moderate, and low-risk options. You can select the most suitable investment avenue from close to 11 different fund options based on your risk tolerance. You can also use our online ULIP calculator to determine your expected returns and select a plan basis that.

Get Flexibility to Choose from 10+ Fund Options with our ULIP

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions (FAQs)

What are the types of charges in the ULIP plan?

The different types of charges in the ULIP mostly include premium allocation charges, fund management charges, surrender charges, fund administration charges, and so on.

What is the refund of mortality charges?

Refund of mortality charges in ULIPs is a provision activated if the insured individual lives until the Unit Linked Insurance Plan matures. If this occurs, the mortality charges subtracted over the plan's duration are reimbursed to the policyholder.

How do mortality charges affect my ULIP investment?

Mortality charges reduce the amount of your premium that is allocated to investment. Therefore, they can impact your overall returns, and hence, you must strike a balance between coverage and investment growth when choosing your ULIP.

Disclaimers

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry.

  • 2Market-linked returns are subject to market risks and terms & conditions of the product. The assumed rate of returns or illustrated amount may not be guaranteed and depends on market fluctuations.

  • ULIP#:

    • IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER

    • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.

    • Past performance is not indicative of future performance.

    • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.

    • Please make your own independent decision after consulting your financial or other professional advisor.