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.

Conclusion

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.

People like you also read...