Life is precious. So, getting a life cover is important. Mortality charge is the actual cost of insuring a life in an insurance policy. It is calculated with reference to a table of standard annual mortality charges. One of these charges is the Mortality Charges, so what is it about? 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 ₹1 lakh and a sum assured of ₹10 lakhs. 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.
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