Life insurance is a contract between an individual and an insurance company, in which the individual pays a premium in exchange for a death benefit that will be paid to a designated beneficiary upon the individual's death. One important aspect of life insurance is the mortality charge, which is the cost of insuring the individual's life.
Meaning of Mortality Charges in ULIP?
As stated above, ULIPs offer dual benefits – investment and insurance. Your money is invested in the funds of your choice as well as a term plan to secure your loved ones. The amount that is contributed towards the latter is also known as the mortality charge in a ULIP. In other words, mortality charges are like the premium paid for a term insurance.
How are Mortality Charges Determined?
Mortality charges are determined by several factors, including the individual's age, gender, health, and lifestyle. Generally, the younger and healthier the individual, the lower the mortality charge. This is because younger and healthier individuals are less likely to die, and therefore, less of a risk for the insurance company.
Gender also plays a role in determining mortality charges. On average, women tend to live longer than men, so they typically have lower mortality charges. However, this may vary depending on the insurance company's underwriting guidelines.
Health is another important factor that can affect mortality charges. Individuals with pre-existing health conditions or those who engage in risky behaviours, such as smoking or excessive alcohol consumption, may have higher mortality charges. This is because these individuals are considered to be at a higher risk of death, and therefore, more expensive to insure.
Lifestyle can also play a role in determining mortality charges. For example, individuals who engage in dangerous hobbies, such as skydiving or rock climbing, may have higher mortality charges than those who do not.
In addition to these factors, the type of life insurance policy also affects mortality charges. For example, term life insurance policies typically have lower mortality charges than whole life insurance policies, because they only provide coverage for a specific period of time. Whole life insurance policies, on the other hand, provide coverage for the entire lifetime of the individual, which makes them more expensive.
Are Mortality Charges Fixed?
It's important to note that mortality charges are not fixed and can change over time. As individuals age, their mortality charges will typically increase. This is because the risk of death increases as individuals get older. Additionally, if an individual's health or lifestyle changes, their mortality charges may also change.
How Can You lower your Mortality Charges in ULIP?
Investing in a ULIP at a young age can lower the mortality charge, as well as providing more time for compounding to maximize returns. This is a beneficial situation for the investor. Waiting to invest in a ULIP results in higher mortality charges and a shorter investment period.
In conclusion, mortality charges are an important aspect of life insurance. They are determined by several factors, including the individual's age, gender, health, and lifestyle. It's important to consider these factors when purchasing life insurance, as they can affect the cost of the policy. It's also important to keep in mind that mortality charges are not fixed and can change over time. It's always a good idea to review and compare policies from different insurance companies to find the best coverage at the most affordable rate.
Aastha Mestry - Portfolio Manager
An Author and a Full-Time Portfolio Manager, Aastha has 6 years of experience working in the Insurance Industry with businesses globally. With a profound interest in traveling, Aastha also loves to blog in her free time.