I have a life policy. I want to know how the insurers calculate mortality charges. Do they hike the charges every year with increase in age or keep it fixed at the age at which the policy was taken?

Anirudh Bhasin, Noida

Mortality charges are a function of actuary calculation made by professional and experienced actuarial managers. It is important because sufficient experience and skill goes into calculation of mortality charges which form the basis of premiums paid for various age bands.

Mortality charges calculation is based on a number of factors:

1. Gender costing- Mortality charges differ for both women and men, (women are said to have a higher mortality than men)
2. Inflation rates
3. Future Growth rates
4. Administration and policy handling charges form part of the mortality charge calculation by the actuary.
5. Further, every premium paid is divided into cash value, which is the interest earned on the policy and pure risk cover charges.
6. The discounted rate of future lapsed policies is covered in the mortality charges calculation.
7. Unearned Reserve is to be created in respect of claims made but not received- this is usually kept upto 3 months for all policy holders.
8. Those lives that are sub standard (not as healthy as a standard healthy human being) need to have a reserves created.

For life insurance policies premium rates are not hiked every year because the probability of losing a lifein a pool of insured policy holders is lower.

For health and general insurance policies, the premium rates are reset every year and increase by 10-15 per cent per annum depending on profitability of the company and positive claim ratio the company has earned over the years.