Mortality charge is the fee collected, which is included in the policy premium. It is collected to give life insurance cover.
Apart from Term insurance, all other insurance plans like endowment, ULIPs are insurance plans coupled with investment. On collected premium, majority of share goes to investment and very little portion goes as a fee for life insurance coverage. This is called mortality charge.
Mortality charge on full sum assured and Sum at Risk
In traditional endowment and some ULIPs , in case of death, full sum assured plus bonus or fund value will be paid. In such cases, mortality charges for full sum assured will be levied throughout the term of policy .
Most of the ULIPs, works under Sum at Risk concept. That is, in case of death, sum assured or fund value, which ever higher is paid. Here, mortality charge calculated on Sum at risk.
If sum assured is 100000 and fund value is 60000, here sum at risk for company is only 40000 because in case of death, 100000 only will be paid to the dependents out of which 60000 is the policy holders money. So mortality will be charged on 40000 only.
If Sum assured is 100000 and fund value is 120000, here in case of death, fund value will be paid. Because, it is higher than sum assured. Here, since company bears no risk, mortality charge will not be levied.