It is the actual cost of insurance by the life insurance company. It is usually deducted with other charges in the policy, before investing your money. Mortality is dependent on the sum at risk (sum assured minus fund value) and should reduce as the fund value increases in the policy term. It is calculated per thousand of sum at risk. Higher the sum at risk, higher is the charge. Ideally, it should reduce as the fund value increases, but it does not.
How is mortality charge calculated?
It is mainly linked to the average Indian life expectancy ratio (which is about 67 years). Other factors such as gender (premium for women is 15-20 per cent less than men), financial status, geography and occupation (a deep sea diver will be charged more than a teacher) are also taken into consideration.
It is likely the premium charged for a product could differ based on the distribution channel. It is largely true for products sold directly by the company or through an online platform. When a product is sold online, no commission is payable and this benefit is passed on to the customer.
Life insurance companies use the Indian Assured Life Mortality Table 1994-96 prescribed by the Insurance Regulatory and Development Authority for calculating the mortality charges. However, the number of claims for each life insurer may be different from the ones seen by the industry on an average, giving way to higher premiums frequently. Therefore, the insurers are allowed to base their policy rates on their own claim experience. The company can tweak the charges, but cannot exceed the maximum limit specified in the policy.
Typically, mortality rate is higher for insurance-cum-investment plans as against a term plan. Or, for plans with benefits such as in-built accidental death, children’s plans that waive premium in case of death of the parent. It forms 8-10 per cent of your premium and is the highest in unit-linked insurance policies.
When are you charged a lower amount?
The mortality rate is lower for youngsters. However, it may not be true for all products and life insurance companies. Generally, in unit-linked child plans, the mortality charge increases from the age of seven till 14, as the risk to life is high in children. It starts decreasing till 20 years, after which it again starts increasing.
However, different products across the life insurance industry charge varied premiums and show difference in mortality, too. This true for all age groups. You can benefit from lower mortality charges, if you buy the insurance policy at a younger age.