What does the mortality and expense risk charge typically cover in variable insurance?

The mortality and expense risk charge in variable insurance primarily covers the risks associated with the life insurance component of the policy, as well as the costs that the insurance company incurs in managing and administering the product. This charge is designed to protect the insurer against the risk of policyholders dying sooner than expected, which would result in higher payouts than projected.

Additionally, the charge also includes a hedge against various administrative costs that arise in managing the insurance aspect of the policy over time. It ensures that the insurer has sufficient funds to cover potential claims related to mortality, thus maintaining the financial stability of the insurance pool.

While investment management fees, administrative costs, and marketing expenses are important components of variable insurance, they are typically covered separately and may be reflected in different fees. The mortality and expense risk charge is specifically aimed at addressing the risks associated directly with the insurer's obligations under the life insurance contract.