Legal Definitions - Mortality Charge

A Mortality Charge, also known as a Cost of Insurance (COI) charge, is a fee deducted by a life insurance company from a policyholder's payments or policy value. Its purpose is to compensate the insurer for the financial risk it takes on by promising to pay a death benefit if the policyholder passes away unexpectedly. This charge is calculated based on various factors, including the policyholder's age, health, gender, and the specific amount of the death benefit, all assessed against actuarial tables that predict life expectancy and the likelihood of death within a given period.

• Example 1: Sarah, a healthy 32-year-old, purchases a whole life insurance policy with a $500,000 death benefit. Because she is young and in good health, the insurer's actuaries determine that the risk of her dying prematurely is relatively low. Consequently, the Mortality Charge deducted from her monthly premium payments will be a smaller amount compared to an older individual with the same coverage, reflecting the lower statistical probability of the insurer needing to pay out the death benefit soon.

• Example 2: Michael holds a universal life insurance policy, which includes a cash value component that grows over time. Each month, before any funds are added to his policy's cash value account or invested, the insurer deducts a Mortality Charge. This deduction covers the cost of the actual insurance protection for that month. If Michael's policy has a higher death benefit or if he is older, this charge will be larger, directly reducing the amount of money that can accumulate and grow within his cash value.

• Example 3: When Emily applies for a term life insurance policy, the insurance company evaluates her medical history, lifestyle, and family health background. Based on this assessment and her age, they assign her a specific risk class. This risk class, along with the policy's death benefit amount, directly influences the calculation of her monthly Mortality Charge. This charge is a fundamental part of her premium, ensuring the insurer has sufficient funds to cover the potential payout should she pass away during the policy's term.