Definition
Mortality Charge
The mortality charge is the cost an insurer deducts to provide pure life cover, based on the insured's age, health and the sum at risk.
In a ULIP, the mortality charge is deducted monthly by cancelling units, and it is calculated on the sum at risk using the insurer's mortality table for the insured's attained age. Younger and healthier lives pay lower mortality charges per ₹1,000 of cover.
Mortality charges rise with age but apply to a shrinking sum at risk as the fund grows. Some ULIPs return the total mortality charges deducted at maturity, a feature marketed as 'mortality refund'. In traditional plans the cost of mortality is embedded in the premium rather than shown separately.
Related terms
- Sum at RiskSum at risk is the portion of the death benefit that the insurer must fund from pooled premiums, equal to the sum assured minus the policy's accumulated fund or reserve.
- Mortality TableA mortality table shows the probability of death at each age, used by actuaries to price life insurance and value liabilities.
- Unit Linked Insurance PlanA Unit Linked Insurance Plan (ULIP) is a life insurance product that combines life cover with investment in market-linked funds chosen by the policyholder.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.