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How to Read Your Annual Policy Statement

What each block of figures is telling you, and which lines are worth a second look

Once a year, most permanent life insurance policies produce a statement, and most of them end up unopened in the same pile as the bank paperwork. It is a shame, because the annual statement is the one document that says what the policy has actually been doing rather than what it was expected to do at the point of sale. The layout differs from one insurer to the next and the labels differ too, so this guide describes the parts by what they mean instead of by what they are called.

What the statement is, and what it is not

A statement is a report on a period that has finished. It shows what was paid in, what was taken out in charges, what the policy holds now, and what the coverage stood at on the date the report was produced. It is not the contract. If the statement and the policy appear to disagree, the contract is the document that governs, and that is a conversation to have with the insurer.

Term policies often generate nothing like this, or only a brief notice, because there is no accumulating value to report. Statements with pages of figures usually mean a permanent policy of some kind.

The names at the top

Three roles sit at the top of the page and people mix them up constantly. The insured is the person whose life the policy covers. The owner is the person who controls the policy, meaning the one who can change a beneficiary, borrow against value, or surrender it. Very often those are the same person, and when they are not, it matters a great deal. The payer, whoever is actually sending the money, is a fourth thing again and carries no authority over the contract on its own.

Check the spelling of the names, the address the statement was sent to, and whether the beneficiary is shown at all. Many statements do not print beneficiary information, so its absence is not evidence that nobody is named. It is a reason to request the designation on file in writing.

The money that went in

Somewhere on the statement is a record of premiums received during the period, and often a figure for the payment the policy was designed around. Compare the two. A policy receiving less than it was built to receive is a policy quietly drawing on itself to stay upright, and that shows up years later as a demand for more money.

You may also see charges deducted, described in language such as cost of insurance, expense charges, or administration charges. That is the price of the insurance itself and the cost of running the contract, and on most permanent policies it is not fixed for life. Rising internal charges are a normal feature of some designs and a warning sign in others, which is exactly the sort of question to put to an agent with the contract open.

The money held inside

Permanent policies carry a value inside them, and it usually appears more than once under slightly different names. One figure is the accumulated value, the full amount credited to the policy. Another is the surrender value, what the owner would actually receive if the policy were handed back, which can be lower in the earlier years because of charges applied on the way out.

If money has been borrowed, a loan balance appears with interest added to it. Read that line carefully. A loan reduces what a beneficiary receives while it is outstanding, and unpaid interest grows the balance without anybody signing anything. Where a policy is eligible for dividends, any dividend credited for the period is shown too, and dividends are a share of the insurer's results rather than a promised amount.

The pages at the back

Many statements close with a projection, sometimes a full in-force illustration, showing the years ahead. These pages typically carry two sets of columns. One assumes the guaranteed terms of the contract. The other assumes conditions continue roughly as they are now. The second set is not a promise, and the gap between the two columns is the most informative thing on the whole document, because it shows how much of the plan depends on things staying as they are.

Where people get this wrong

• Reading the surrender value as the death benefit. They are separate figures with separate purposes, and on most policies they are not paid together.
• Treating the projected columns as fixed. Anything shown on non-guaranteed assumptions can move, and a projection produced today is a snapshot rather than a schedule.
• Ignoring a small loan. Loans compound quietly, and a balance that looked minor at the time can grow into a real reduction of what is left for a beneficiary.
• Assuming silence means nothing has changed. A statement that arrives with no covering letter can still show a policy trending in the wrong direction, and nobody will call to point it out.
• Filing it unread for years. The value of the annual statement is that it can be compared with last year's, and that only works if the older ones were kept.

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