Mortality Charge Definition in Life Insurance

‘Why do insurance policies come with so many charges?’ This is often asked by an individual who is trying to buy an insurance policy. Let us understand one of the most important charges levied by the company: Mortality charge.

What is Mortality Charge?

Life insurance companies provide you with protection against various risks in life. When the company provides protection against the risk of death, it is called life cover. The charge thus levied is called Mortality charge.

Mortality charge is a part of the premium paid by the customer. The rest of the premium goes as investment into the savings fund which is returned to the customer as the policy matures at the end of the policy term or the death of the customer, whichever is earlier. How is the mortality charge calculated?

We all know that mortality rate is the death rate or the rate at which death occurs in a particular set of population. Mortality rate for a particular age is calculated using numerous parameters. So, based on the mortality rate of the country and the particular age group, the mortality charges are charged on the sum assured using this formula:

Mortality charge= Mortality rate (based on age of the customer in the particular month) x sum assured x 1/12

Mortality charge is calculated on monthly basis and is deducted at the beginning of the month.

Next question that arises is ‘why different companies have different mortality charges?’

Different insurance companies have different visions and cater to different set of customers. Based on the risk that their customers carry, they decide on the mortality charges. E.g., some companies might be offering health insurance to heart patients and hence the risk of death carried by this set of customers will be higher than the healthy customer and hence the mortality charge will be higher.


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