Mortality Charges in ULIP: How They Work & Are Calculated

Overview

Mortality charges in a Unit-Linked Insurance Plan (ULIP) are the cost of the life cover built into the plan that are deducted every month by canceling units from your fund. The amount depends on your age, health, and the sum at risk (the gap between the sum assured and the fund value). These charges increase with age. As per IRDAI Regulations, mortality charges in ULIP should be expressed as a function of ₹1,000/- sum at risk for each age.

Type I ULIPs see declining charges as fund value rises, while Type II keeps risk constant, so charges stay higher. This guide is ideal for those individuals who wish to understand how mortality charges work in a ULIP.

Mortality charges in a ULIP are easy to ignore, but they quietly reduce your returns every month. If a large part of your premium goes toward insurance costs instead of investment, it raises an important question. Is a ULIP really the most efficient way to grow your money?

Recent personal finance discussions have raised concerns about ULIP mis-selling and exaggerated return projections. Many “14% return” illustrations often overlook charges like mortality costs, premium allocation fees, and other ULIP charges that reduce the actual amount invested.

In the next few minutes, we will walk you through how mortality charges work in a ULIP, how they are calculated, and how they impact your returns over time.

How Are ULIP Mortality Charges Calculated?

Mortality charges may look small, but they quietly reduce your fund every month. Here is how they are calculated.

Basic Formula

Annual charge = Mortality rate × sum at risk ÷ 1,000
Monthly charge = Annual charge ÷ 12

The insurer deducts this amount by canceling units from your fund.

Example

Sum at Risk: ₹10,00,000
Mortality Rate: ₹1.50 per ₹1,000 per year
Net Asset Value (NAV): ₹25

The annual mortality charge works out to ₹1,500, which means a monthly deduction of ₹125. Based on a NAV of ₹25, the insurer cancels 5 units from your fund for that month, reducing your overall investment value slightly.

Note: This is a broad method. Always check your policy document, as insurers must clearly state how charges are calculated and applied.

Case Scenarios

Here are two scenarios that show mortality charges as a percentage of the sum assured.

Scenario: Type I ULIP

Year	Fund Value	Sum at Risk	Annual Mortality Charge	Mortality Charge as % of Sum Assured
1	₹1,00,000	₹9,00,000	₹1,800	0.18%
3	₹3,00,000	₹7,00,000	₹1,400	0.14%
5	₹5,50,000	₹4,50,000	₹900	0.09%
8	₹8,50,000	₹1,50,000	₹300	0.03%
10	₹10,50,000	₹0	₹0	0.00%

Note: The above table assumes a ULIP where the death benefit is the higher of the sum assured or fund value, with a sum assured of ₹10 lakh and an assumed mortality charge rate of ₹2 per ₹1,000 of the sum at risk annually, equivalent to 0.20% per year.

In a Type I ULIP, the insurer’s risk reduces as the fund value grows. As a result, mortality charges can fall sharply over time, from around 0.18% of the sum assured in the initial years to nearly 0.03% later. In some cases, charges will become zero if the fund value exceeds the sum assured.

Scenario: Type II ULIP

Year	Fund Value	Approx. Sum at Risk	Annual Mortality Charge	Mortality Charge as % of Sum Assured
1	₹1,00,000	₹10,00,000	₹2,000	0.20%
3	₹3,00,000	₹10,00,000	₹2,000	0.20%
5	₹5,50,000	₹10,00,000	₹2,000	0.20%
8	₹8,50,000	₹10,00,000	₹2,000	0.20%
10	₹10,50,000	₹10,00,000	₹2,000	0.20%

Note: The above table assumes a ULIP where the death benefit equals the sum assured plus the fund value, with a sum assured of ₹10 lakh and an assumed mortality charge rate of ₹2 per ₹1,000 of sum at risk annually.

Key Difference

ULIP Type	Mortality Charge Behavior
Type I	Usually reduces as the fund value rises because the sum at risk falls.
Type II	Usually remains higher because the insurer pays the sum assured plus fund value.

Therefore, a 0.20% mortality charge may look small, but its impact adds up over time. Insurers deduct it each month by canceling units from your ULIP fund. This leaves less money invested for future growth. Mortality charges also rise with age, which can significantly increase long-term costs.

Note: Some sales pitches may focus on high historical or assumed returns without clearly explaining the charges involved. However, the official benefit illustration remains mandatory. It clearly discloses all charges and shows the net yield based on the IRDAI -prescribed 4% and 8% gross return scenarios. This ensures transparency and helps you in making a more informed comparison.

Why Does the Insurer Deduct Units Instead of Charging an Extra Price?

In a ULIP, your money is held as units rather than cash. That is why insurers recover charges by canceling units instead of asking you to pay separately.

Your premium is first adjusted for any upfront charges.
The remaining amount is invested in your chosen fund at the current NAV.
You receive units based on that NAV.
Each month, charges like mortality are recovered by canceling a few units.
As per the IRDAI, this method must be clearly defined in the policy.

This approach keeps payments simple, but your fund value reduces every month. Over time, these small deductions can affect your overall returns.

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Factors That Affect Mortality Charges in ULIP

Age: This is the most important factor. Mortality charges rise as you grow older because the risk of death increases. Insurers price this per ₹1,000 of sum at risk, so even small age differences can impact long-term costs.
Sum at Risk: This is the gap between your sum assured and fund value. A larger gap means a higher risk for the insurer, leading to higher charges. Fund growth over time can gradually reduce this cost.
Death Benefit Design: Plans that pay both sum assured and fund value carry higher insurer risk than plans that pay the higher of the two. This structure usually results in higher mortality charges over the policy term.
Sum Assured Multiple: Regulations set minimum cover levels based on your premium and age. You cannot reduce coverage below this limit just to lower charges. This ensures a minimum level of protection is always maintained.
Health and Underwriting Class: Your medical history, lifestyle habits like smoking, and job risk affect pricing. Higher perceived risk leads to additional loading on mortality charges, which increases the overall cost of the policy.
Riders and Additional Covers: Adding riders like accidental death or critical illness increases overall cost. These charges are usually deducted monthly by canceling units, which reduces your investment value over time.
Partial Withdrawals: Withdrawals can change the sum at risk and affect how death benefits are calculated. In some cases, recent withdrawals may reduce the payout, which can affect how mortality charges are applied.
Settlement Option After Maturity: If you choose to receive maturity proceeds over time instead of a lump sum, the policy may continue with a small risk cover. Mortality charges apply during this period, which slightly reduces payouts.

Does the Sum Assured Affect Mortality Charges?

Yes, the sum assured you choose can influence ULIP mortality charges because they depend on the insurer’s risk profile.

Higher of Sum Assured or Fund Value: If the fund value grows beyond the sum assured, the insurer’s risk reduces sharply. In such cases, mortality charges may become very low or nearly nil, subject to policy terms.
Sum Assured Plus Fund Value: Here, the insurer must pay both the life cover and the investment value. Since the insurance risk continues, mortality charges usually continue throughout the policy term.

Always check the death benefit structure before buying a ULIP. Two similar plans can have very different long-term charges.

How to Reduce Mortality Charges in Your ULIP

Buy Early

Start your ULIP at a younger age to enter at lower mortality rates. Since charges increase with age, an early start helps keep costs lower throughout the policy term and improves overall efficiency.

Use ULIP for Investment, Not Heavy Cover

ULIPs work best as long-term investment tools with basic life cover. If you load them with high protection needs, mortality charges rise. Avoid taking very high cover within a ULIP just for comfort, as it increases charges. At the same time, do not go below the required limits. A separate term plan provides broader coverage more efficiently.

Choose the Right Death Benefit Option

The “higher of sum assured or fund value” option usually reduces charges over time as your fund grows. The “sum assured plus fund value” option gives better cover but increases the insurer’s risk and your cost.

Add Riders Only When Needed

Riders provide extra protection but come at a cost. If charges are deducted through unit cancellation, they reduce your fund value each month. Add only those riders that you truly need.

Maintain Health and Disclose Honestly

A good health profile helps you avoid extra mortality loading. Always disclose medical details truthfully, as hiding information can lead to claim rejection later.

Check the Benefit Illustration Carefully

Do not focus only on projected returns. Review the full benefit illustration to understand charges, net yield, and how they impact your long-term returns and final maturity value.

Compare Mortality Charge Tables

Different ULIPs can have different charge structures. Always review the mortality charge table in the policy document.

Having said that, the most effective way to avoid mortality charges is not to opt for a ULIP at all.

Note: Mortality charges can continue even after ULIP maturity if you choose the settlement option instead of withdrawing funds immediately, since a minimum life cover may still remain active during that period.

Did You Know?

Some ULIPs may return part or all mortality charges at maturity through loyalty additions or return-of-charge benefits, but this depends on policy terms and specific conditions. For example, HDFC Life Smart Protect Plus offers fund value boosters linked to 2x to 3x of mortality charges under selected options. ICICI Pru Signature Online also provides a return of mortality and certain policy administration charges at maturity, subject to policy terms.

However, even the Return of Mortality Charges (ROMC) does not fully solve the problem. A lower amount gets invested in the early years, which affects compounding. Moreover, by the time charges are returned, the money has already lost potential growth and real value.

ULIP vs Term Insurance: Which Is Better?

From a protection perspective, term insurance offers significantly higher life cover at a much lower cost. For example, an Axis Max Life ULIP premium of ₹1 to ₹2 lakh a year may provide around ₹20 lakh cover, while a pure term plan such as Axis Max Smart Term Plan Plus can offer ₹2 crore or more cover for roughly ₹18,000 to ₹20,000 annually. The premiums remain fixed for the entire policy term.

From an investment perspective, ULIPs include multiple charges that can reduce long-term returns. In many cases, low-cost options such as index funds or the National Pension System (NPS) may deliver better value over time.

The infographic below clearly explains the difference.

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Conclusion

Mortality charges may look small, but they steadily reduce your invested base and limit long-term growth. Over time, this creates a silent drag that most investors underestimate. If your goal is strong protection and efficient wealth creation, combining insurance and investment into a single product often works against you.

A simpler approach is to separate insurance and investment. Take a pure term plan for life cover and invest the premium difference in financial instruments that offer better return potential. You can choose between suitable options such as mutual funds, the National Pension System (NPS), and Fixed Deposits (FDs) based on your risk appetite, investment tenure, liquidity needs, and tax goals. If you need strong life cover, explore our guide on the best term insurance plans that match your long-term financial goals and family needs.

Frequently Asked Questions

What are mortality charges in ULIP plan?

Mortality charges in a ULIP are the cost of the life insurance cover attached to the policy. Insurers deduct this amount every month by canceling units from your investment fund. The charge mainly depends on your age, health, lifestyle, and the “sum at risk,” which is the gap between the sum assured and your fund value. Since these deductions are taken directly from your investments, they reduce the amount that remains invested and compounds over time. This is one reason why ULIPs often become less efficient at pure wealth creation than standalone investment products like mutual funds.

How are mortality charges calculated in a ULIP?

Mortality charges are calculated using a simple formula based on the insurer’s mortality rate and your sum at risk. The insurer first calculates the annual charge per ₹1,000 of risk cover and then divides it into monthly deductions. Instead of requesting separate payments, the insurer cancels units from your ULIP fund every month at the prevailing Net Asset Value (NAV). The exact rates vary across insurers and policy structures. Younger policyholders usually pay lower charges, while older policyholders pay more because the insurance risk increases with age. Always check the policy document for the exact mortality charge table.

What is the sum at risk in a ULIP, and why does it matter for mortality charges?

The sum at risk is the insurer’s actual financial exposure under your ULIP policy. It is generally the difference between your sum assured and your current fund value. A higher sum at risk means the insurer carries more liability, which increases mortality charges. In Type I ULIPs, this risk reduces as your fund value grows, so mortality charges may gradually decline. In Type II ULIPs, the insurer pays both the sum assured and fund value on death, which keeps the risk exposure higher throughout the policy term. This directly affects the long-term cost efficiency of the ULIP.

What is the difference between Type I and Type II ULIP mortality charges?

Type I and Type II ULIPs differ mainly in how death benefits are structured. In a Type I ULIP, nominees receive either the sum assured or the fund value, whichever is higher. Since the insurer’s risk reduces as the fund grows, mortality charges usually decline over time. In a Type II ULIP, nominees receive both the sum assured and the fund value. This keeps the insurer’s liability consistently higher, which leads to higher mortality charges throughout the policy term. While Type II plans offer stronger death benefits, they also create a larger drag on long-term investment growth.

Do mortality charges increase with age in a ULIP?

Yes, mortality charges increase with age because insurers view older individuals as higher- risk. The mortality rate per ₹1,000 of sum at risk rises gradually as policyholders grow older. This means a larger portion of your premium goes toward insurance costs over time, rather than toward investments. Buying a ULIP at a younger age usually locks in lower initial charges and improves long-term cost efficiency. However, over long policy terms, increasing age-related deductions can still reduce overall returns. This is why understanding the charge structure is important before committing to a long-term ULIP policy.

How do mortality charges affect ULIP returns?

Mortality charges reduce ULIP returns because insurers deduct them monthly by canceling units from your fund. Every unit removed from the portfolio loses the opportunity to benefit from future market growth and compounding. While the deduction may appear small initially, the long-term impact can become meaningful over 10 to 20 years. Higher mortality charges leave less money invested in equity or debt funds, which lowers the effective growth of your corpus. Many investors focus only on projected returns shown in brochures and underestimate how recurring insurance costs quietly reduce long-term wealth creation inside a ULIP.

Can mortality charges in a ULIP be reduced or avoided?

Mortality charges cannot be completely avoided because they are part of the insurance component of a ULIP. However, policyholders can reduce them by buying early, maintaining good health, avoiding unnecessary riders, and choosing practical levels of life cover. Selecting a Type I ULIP instead of a Type II structure may also reduce long-term mortality costs because the insurer’s risk decreases as the fund value grows. Comparing mortality charge tables across insurers is equally important since costs vary between plans. A carefully structured ULIP usually performs better than one overloaded with excessive insurance cover and riders.

What is the mortality charge as a percentage of the sum assured in a ULIP?

Mortality charges are often expressed as a percentage of the sum assured or as a rate per ₹1,000 of sum at risk. For illustration, you can convert the rupee charge into a percentage of the sum assured. However, the actual charge table is defined in absolute rupee terms rather than percentages. In many Type I ULIPs, this percentage gradually declines as the fund value grows, thereby reducing the insurer’s exposure. In Type II ULIPs, the percentage usually stays more stable because the insurer continues to provide both the sum assured and fund value as death benefits.

Do some ULIPs refund mortality charges at maturity?

Yes, some modern ULIPs offer a refund of mortality charges at maturity through loyalty additions or special booster benefits. These features aim to reduce the perceived cost of insurance by adding back part or all of the mortality charges if the policyholder stays invested for the full term. However, these benefits are usually subject to conditions related to premium payment continuity, policy duration, and fund performance. Investors should not assume that every ULIP offers this feature automatically. It is important to read the policy document carefully and understand how the refund works before relying on it as a major advantage.

Last updated on: 9 May, 2026