Unit Linked Investment Plans (ULIPs) offer a unique blend of insurance and investment. These plans enable you to grow your wealth while providing an assured amount to secure your loved ones in your absence. However, before you invest in a ULIP, it is necessary to understand the various charges associated with it. Read on to understand one important charge that is a part of your premium, the mortality charge in ULIP.
What are Mortality Charges?
The cost borne by the insurer to provide you with a life cover~ is called mortality charge. The life cover~ you get ensures that your loved ones are financially secure in case of an unfortunate event. Mortality charges increase with age. So, the sooner you invest in a ULIP, the lower your mortality charges. Mortality charges in ULIPs can affect your returns and reduce the final value of your investment. Therefore, it is essential to be aware of them and look for plans with low mortality charges to boost your investment gains.
Factors Influencing Mortality Charges
There are several factors that influence the amount of mortality charges in life insurance policies:
- Age: Age plays a significant role in determining the amount of mortality charges for your policy. The younger you are, the lower the mortality charges
- Health status: The amount of mortality charges also depends on your general health and fitness. If you are in good health, the charges are lower
- Lifestyle choices: Certain lifestyle habits, such as smoking and excessive alcohol consumption, can negatively impact your health. Insurers may charge higher mortality charges in such cases
How is mortality charge in ULIP calculated?
The amount of mortality charges to be paid primarily depends on factors like your age, gender, sum assured, etc. Like any other term insurance plan, the mortality charges are low if you buy the plan at a young age and increase substantially as you get older. Insurance providers calculate mortality charges by considering the mortality rate and the risk cover.
Here, the risk cover refers to the amount of life cover~ that the insurance company has to pay to the nominee in an unfortunate event with the policyholder. The mortality rate depends on a person’s current age. Since the likelihood of illnesses and poor health rises as one ages, the insurance company considers age as a major determinant while calculating the risk involved in insuring a life.
Let’s understand how mortality charges are calculated with an example. Consider a scenario where Siddhesh, a 35-year-old, wants to create wealth. He chooses to invest in a ULIP with a premium of ₹ 2 lakh and gets a life cover~ of ₹ 20 lakh
Mortality charges = [Mortality rate (for attained age) × Sum at Risk^^/1000] × 1/12)
Let’s assume that the mortality rate is 1.29. If the sum assured for a ULIP is ₹ 20 lakh, the monthly mortality charge for the ULIP using the given formula would be:
Mortality charges = (1.29 × 20,00,000/1000) × 1/12 = ₹ 215)
In this scenario, the monthly mortality charge for the ULIP would be ₹ 215. Moreover, the mortality charges keep reducing over time as your fund value increases.
How to lower your mortality charges in ULIP?
The best way to lower the mortality charge in a ULIP is to invest in the plan at a young age. Moreover, since ULIPs are long-term investments, the sooner you invest in them, the more time you have to benefit from the power of compounding and maximise your returns. This presents a win-win situation for you. Buying a ULIP at a later stage would result in higher mortality charges along with a shorter investment period.
ULIPs can provide multiple advantages under a single policy. This is one of the main reasons for their popularity amongst investors. However, it is important to invest in ULIPs as early as possible to lower the overall costs incurred and reap maximum benefits from the policy. Buying a policy at a young age translates to lower mortality charges for the plan and higher returns from your invested capital.
If you are looking to invest in a ULIP, you can consider the ICICI Pru Lifetime Classic Plan. The plan offers many attractive features, like:
- 4 portfolio strategies1 as per your preferred investment style
- Choice of equity, balance and debt funds
- A life cover~ and the prevailing fund value as a lump sum payout in case of an unfortunate event
- 4 free fund switches in a policy year
- Wealth Boosters3 to increase your overall returns
- A top-up facility to increase your investment
- Flexible premium payment methods like monthly, half-yearly, and yearly options
- Tax benefits2 under Section 80C of the Income Tax Act, 1961
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1 The Policyholder can have funds in only one of the Portfolio Strategies.
2 Tax benefits under the policy are subject to conditions under Sections 80C, 80D, 10(10D), 115BAC and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for more details.
3 Wealth Boosters equal to 3.25% of the average of the Fund Values including Top-up Fund Value, if any, on the last business day of the last eight policy quarters will be allocated as extra units to your policy at the end of every 5th policy year starting from the end of 10th policy year till the end of your policy term.
~ Life Cover is the benefit payable on death of the life assured during the policy term.
^^Sum at Risk = Highest of,
- Sum Assured, including Top-up Sum Assured, if any
- Fund Value (including Top-up Fund Value, if any),
- Minimum Death Benefit
- Fund Value (including Top-up Fund Value, if any)
ICICI Pru LifeTime Classic (unit-linked non-participating individual life insurance plan) - UIN: