8/8/2019 Private Life Insurance Increase Mortility Charges.

1/2

Monday, September 27, 2010

PRIVATE LIFE INSURANCE INCREASE

MORTILITY CHARGES.

Life insurers have tossed ethics out of the window,

and the insurance regulator seems to be looking the

other way.

In a concerted move, a number of life

insurance companies have quietly increased

the mortality charges on their unit-linked

plans (Ulips) from September 1.

The Insurance Regulatory and Development

Authority (IRDA) didnt find anything wrong withthat and cleared a passel of new plans recently.

The move is another blow for investors in Ulips the product that stormed the mutual fund bastion a

couple of years ago and sparked a tussle for regulatory oversight between the IRDA and capital market

watchdog Sebi earlier this year.

Earlier, the life insurers raised the entry barriers for Ulips by increasing the minimum monthly

premium on a policy to anywhere between Rs 1,500 and Rs 3,000 a month from Rs 500 to Rs 2,000

earlier. Clearly, the insurers were looking to target the well-heeled through the new Ulip plans.

But in an even more sinister move, they have raised the mortality charge, which is the cost deductedfrom the premium you pay to cover the payment of death benefits.

Why to worry?

Let us suppose you have bought a policy with a sum assured of Rs 10 lakh and the total premium (or

the investment fund value in the case of a Ulip) paid till now is Rs 2 lakh. If you happen to die now, the

risk of death benefit payment on the insurer is Rs 8 lakh.

To cover this risk, the insurer deducts the mortality charge from your premium. While the mortality

premium is calculated on the sum at risk (Rs 8 lakh in our example), the premium rate is determined

by the mortality table.

Mortality measures the probability of death, and the mortality premium rate increases with the

increase in the age of the policyholder.

From September 1, the insurers have increased the mortality premium rates for each

age category steeply compared with the Ulips they sold before.

For example, the mortality charge for a 20-year old policyholder was Rs 1.122 per Rs

1,000 sum at risk in the case of Bajaj Allianz Lifes Max Gain policy. The insurer has

now more than doubled it to Rs 2.57 per Rs 1,000 sum at risk in its new Ulip Max

Advantage.

The insurers have a glib explanation for this move.

8/8/2019 Private Life Insurance Increase Mortility Charges.

2/2