Radha, a thirty-seven-year-old marketing consultant, decides to buy a 10-year ULIP. The premium paid was 10,000 per month, and the ULIP returns capped at Rs.12,00,000, which is ten times her premium. The amount to be paid during the sudden death of Radha is higher than the assured sum and the value of the fund.
In case of Radha’s death during the policy term, the amount paid to the nominee is much higher than the amount paid for fund value. For instance, if the amount of fund value is around 5 lakhs, the nominee will get 12 lakhs.
This is how mortality charges work in ULIPs; they double as life coverage.
Every Unit-Linked Insurance Plan comes with a mortality charge. The majority of the premium amount is invested in one or more investment vehicles such as debt or equity. A small charge, however, is retained by the insurer. Mortality charges in ULIP refer to the charge paid to the insurer as a life cover. The funds retained by the insurer as life cover is the mortality charge incurred in ULIPs. The mortality charges in ULIPs are paid along with the same funds, so the individual does not have to pay later, as in the case of insurance products.
Precisely, mortality charge refers to the charge levied by the insurer that is deducted from the fund value of ULIPs. It is paid to the insurer in case of any mishap. The deciding factor of the mortality charge is the sum at risk. This is the amount that the insurer pays on their own to the nominee on the insured’s death. Since the insurer pays from their own pocket, the mortality charge is paid as compensation for the risk involved.
Calculating Mortality Charges
The ULIP mortality charge calculator uses the mortality rate of the customer to determine the mortality charges in ULIPs. Mortality charges depend upon a lot of factors such as sex, age, as well as medical history. The key takeaway here is that the younger the client, the lower is the mortality rate, provided that the individual has no lifestyle diseases.
The ULIP mortality charge calculator follows a stringent formula. The charge is calculated per 1000 of the cover, depending on the type of ULIPs, location, and financial conditions of the policyholder as risk factor.
As of now, the mortality rate is sourced from the revised Indian Assured Life Mortality Table 2012-14, published by the Institute of Actuaries of India. The mortality charges are calculated in accordance with the prescribed data recommended by IRDAI, according to this formula:
Mortality charge = [Mortality rate (for attained age) * Sum at Risk/1000] * 1/12
Factors that Determine Mortality Charges
The mortality charges in ULIP depend on a number of factors, like age, gender, and health.
The mortality charges incurred by a young person are much lesser than those incurred by an older individual. However, the ULIP for adults cannot be confused with child ULIPs that usually have a higher mortality rate, particularly for children between 7 and 14 years.
Since mortality charge also depends on gender, it is lower for women. This charge in ULIPs for women is calculated during a gap of three years. This simply means that a 35-year-old woman will have to pay the same mortality charge in ULIPs as a 32-year-old man.
Does Invest 4G by Canara HSBC Oriental Bank of Commerce Life Insurance offers Return of Mortality Charges?
Yes, Invest 4G offers return of mortality charges. The main concern of ULIPs as an instrument for investment is the added charges. ULIPs acts as both investment and insurance, which can be a deterrent.
The bank will pay an amount that is equal to all the charges deducted during the term of the policy, added to the fund value upon the policy’s maturity (provided every premium payment has been paid without delay and subject to certain conditions. This makes Canara HSBC Oriental Bank of Commerce Life Insurance ULIPs like Invest 4G a more convenient investment option, provided you are not discontinuing the ULIP policy.
Apart from the return of mortality charges, Invest 4G Plan comes with additional perks like:
- Guaranteed income, which is a huge relief for retirees.
- Limited premium payment.
- Multiple options for death benefits - nominees can receive it as a lump sum, as monthly income, or as a combination of both.
- Maximum flexibility to help you manage your savings, using eight different unit-linked funds that include options like debt fund, liquid fund, growth plus fund, etc.
- Loyalty additions at the end of specific policy years provided all the premiums have been paid on time.
- Additional wealth boosters calculated as a percentage of the average fund value, provided sixty monthly policy premiums have been completed.
- Options for partial withdrawal, systematic withdrawal, and milestone withdrawal to maximize liquidity and utility for the policyholder.
- Tax benefits according to the prevailing income tax laws.
- Reduction of premiums if payment has been consistent after the first five years of policy payment, provided the policyholder meets certain conditions.
Now that we have explained how mortality charges worked, it is obvious that ULIPs, where mortality charges are returned, is an ideal investment option that allows you to save a considerable amount of money while enjoying perks like tax deductions and fund management.