Mortality charges

What are mortality charges?

Mortality charges are the price of the life cover inside a policy: the amount the insurer needs to collect to pay death claims across all the people it insures. Every life policy has a mortality cost. In traditional (non-linked) plans it is built into the premium and never shown separately. In a ULIP it is a visible charge, deducted from the customer's fund every month by cancelling units.

The charge depends mainly on the age of the life assured and the amount of cover the insurer is actually exposed to, called the sum at risk. Gender, smoking status, health and occupation can also change the rate through underwriting. When the same charge covers health risks, such as a critical illness benefit, it is called a morbidity charge.

How mortality charges work in ULIPs

The IRDAI (Insurance Products) Regulations, 2024 set clear rules for mortality and morbidity charges in unit linked products. As of October 2026:

• The charge reflects only the pure risk cost. It cannot include an expense loading or any other element.
• It is deducted at the start of each policy month by cancelling units from the fund.
• It is expressed per ₹1,000 of sum at risk for each age, and the full mortality charge table forms part of the policy document.
• The table is guaranteed for the term of the contract. The insurer cannot raise the rates later.
• Rates must be reasonable, consistent with recognised mortality tables and supported by the insurer's own experience where available.

The Master Circular on Life Insurance Products (June 2024) adds that the mortality assumption used for the charge must match the one used to profit-test the product. For group pricing, the circular refers to IALM (2012-14) as the current standard mortality table.

Sum at risk depends on the ULIP's death benefit option:

The 2024 Regulations allow mortality charges to be left out when insurers test a product against IRDAI's cap on reduction in yield, because they pay for protection rather than investment. They still reduce the fund the customer sees.

Other rules touch the charge. After a ULIP becomes reduced paid-up following discontinuance after the lock-in, mortality charges are based only on the reduced paid-up sum assured. During a settlement period after maturity, cover is kept at 105% of premiums paid and mortality charges continue for that cover.

Example

A 35-year-old buys a ULIP with a ₹50 lakh sum assured. Assume, purely for illustration, a mortality rate of ₹1.50 per ₹1,000 of sum at risk a year.

• In year 5, the fund is ₹10 lakh. Under the "higher of" option, sum at risk is ₹40 lakh, so the annual charge is about ₹6,000, or ₹500 a month.
• Under the "plus" option, sum at risk is ₹50 lakh, so the annual charge is about ₹7,500.

As the customer ages, the rate per ₹1,000 rises, so the charge grows even if the sum at risk stays the same.

What mortality charges mean for distribution

• Explain the deduction before the first statement. Customers who see units cancelled each month without warning often think the fund is losing money. Showing the mortality line in the benefit illustration avoids that complaint.
• Choose the death benefit option deliberately. The "plus" option protects better but costs more over time. For a customer who needs high cover, a separate term plan plus a lower-cover investment product can sometimes cost less. A good adviser shows both.
• Age and health drive the cost. Older customers and those with health loadings pay much higher mortality charges in a ULIP, which can eat into returns. Suitability checks should look at this.
• Return of mortality charge variants. Some ULIPs add back the mortality charges at maturity. The feature has a cost elsewhere in the product, so advisers should compare the full charge structure, not this feature alone.
• GST relief. From 22 September 2025, individual life policies including ULIPs were exempted from GST, so charges deducted from individual ULIP funds no longer carry GST on top.