Smart things to know about the mortality charge

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. This is based on data related to average human mortality rates.

The charges usually depend on the age of the insured. However, actuaries may adjust the standard rates based on the health and occupation. These are likely to be lower for younger, healthier individuals, who are not in a risky occupation.

Before the policy is enforced, the insured should be informed about any adjustments leading to higher mortality charges and reasons for perceived higher risk. The insured must give his consent to the escalated charges.

The mortality rate is per Rs 1,000 of the cover or sum at risk in case of Ulips. The mortality charge is calculated as follows: applicable mortality rate x cover (or sum at risk)] / [1000 x 12].

In a term insurance policy, these charges are deducted from the premium paid at the beginning of each month. In Ulips, equivalent units are cancelled from the savings fund. Service tax and education cess are levied on the mortality charges.

The content on this page is courtesy Centre for Investment Education and Learning (CIEL).