A mortality charge is the fee a life insurance company deducts from your policy each month to cover the risk that you could die while the policy is in force. It’s the core cost of being insured, sometimes called the “cost of insurance” (COI), and it appears in permanent life insurance policies like universal life, variable universal life, and variable life. If you own one of these policies, this charge is pulled directly from your cash value every month.
How Mortality Charges Are Calculated
The calculation has two parts: a rate and a risk amount. Your insurer assigns you a cost of insurance rate, expressed as a price per $1,000 of coverage. That rate is then multiplied by something called the “net amount at risk,” which is the gap between your death benefit and your current cash value. So if your policy has a $500,000 death benefit and your cash value has grown to $80,000, the insurer is really on the hook for $420,000. Your mortality charge is based on that $420,000, not the full $500,000.
This means your mortality charge can actually shrink over time if your cash value grows significantly, because the insurer’s exposure decreases. But there’s a competing force: your rate per $1,000 goes up every year as you age. In practice, the rising rate usually wins out over time, and mortality charges climb steadily in later years.
Why the Charge Rises With Age
Mortality risk increases exponentially as people get older. Population-level data shows that the risk of death roughly doubles every six to seven years during adulthood, translating to about an 11% increase from one year to the next. Insurance companies reflect this biological reality in their pricing. A 40-year-old’s cost of insurance rate might be barely noticeable inside a well-funded policy, but by age 70 or 75, those monthly deductions can become substantial enough to erode cash value quickly if the policy wasn’t funded generously in earlier years.
This escalation is the single biggest reason permanent life insurance policies lapse in old age. If the cash value can’t keep pace with the rising mortality charges, the policy collapses unless you start paying more out of pocket.
What Determines Your Rate
Your mortality charge rate is personal to you, set during underwriting based on a combination of factors:
- Age and sex are the two biggest drivers. Women generally pay lower rates because they have longer life expectancies.
- Smoking status creates a sharp divide. Smokers can pay two to three times more than nonsmokers of the same age.
- Health indicators like blood pressure, cholesterol, blood sugar, and body mass index all factor into the underwriting class you’re assigned.
- Behavioral and demographic factors including occupation, income, and physical activity level can also influence pricing, depending on the insurer.
Insurers group policyholders into rating classes (preferred plus, preferred, standard, and so on) based on these variables. Your class determines where your rate falls on the spectrum. All of this is anchored to standardized mortality tables. Since January 2020, insurers have been required to use the 2017 Commissioner’s Standard Ordinary (CSO) mortality tables as the regulatory baseline for pricing and reserves.
Current vs. Guaranteed Maximum Rates
Most universal life contracts contain two sets of mortality rates. The “current” rate is what the insurer actually charges you today, based on the company’s recent claims experience and investment returns. The “guaranteed maximum” rate is the highest the insurer is contractually allowed to charge, written into the policy at issue.
In good times, the current rate stays well below the guaranteed maximum, and the difference can be significant. But the insurer has the right to raise current charges up to that ceiling if its financial experience worsens. This has happened in practice. Some insurers have raised COI rates on older blocks of policies, sometimes dramatically, catching policyholders off guard with charges they hadn’t anticipated. When you review a policy illustration, pay close attention to projections run at both current and guaranteed rates. The guaranteed column shows the worst-case scenario for your cash value.
Mortality Charges in Annuities
The term shows up in a different form with variable annuities. Here, it’s bundled into a “mortality and expense risk charge” (M&E), which compensates the insurer for guarantees built into the annuity contract, such as a guaranteed death benefit or lifetime income options. The SEC notes that M&E charges typically run around 1.25% of account value per year. Unlike life insurance mortality charges, which are deducted as a flat monthly dollar amount, M&E charges are assessed as a percentage of your total account balance and taken continuously.
Insurers sometimes use profits from the M&E charge to cover distribution costs, including commissions paid to the financial professional who sold you the annuity. This is worth knowing because the M&E charge persists for the life of the contract regardless of whether you’re still benefiting from the guarantees it funds.
How Mortality Charges Affect Your Policy
In a term life policy, mortality costs are baked into your premium, so you never see them itemized. In permanent policies, they’re visible on your annual statement, and they matter a great deal for long-term planning. Every dollar deducted for mortality charges is a dollar that isn’t earning interest or investment returns inside your cash value. Over decades, this compounding drag adds up.
If you’re reviewing an existing policy, look at how your mortality charges have trended over the past several years and compare that trajectory to the cash value balance. A policy where charges are growing faster than the cash value is on a path toward requiring additional premium payments or, eventually, lapsing. Requesting an updated “in-force illustration” from your insurer will show you projected mortality charges year by year, giving you a clear picture of whether the policy can sustain itself at its current funding level.