Understanding Your Life Insurance Statement

A life insurance statement is a type of form that outlines the policyholder's coverage, confirming that the insured was covered starting on a specific date. It is a contract between an insurance company and a person (or legal entity) called the policyholder. The contract includes the insurance provider's name, the type of policy, the insured's name, and the name of the policy owner. The life insurance company will generally mail out an annual statement around the month of the policy date.

The purpose of a life insurance statement

A life insurance statement is a type of form that outlines the policyholder's coverage, confirming that the insured person was covered starting on a specific date. It is a contract between an insurance company and a person (or legal entity) called the policyholder. The words in the contract are important, especially when beneficiaries have to make a claim. Understanding the different definitions and sections of a life insurance contract can help policyholders know how their policy works and how it can help protect their loved ones if they pass away.

For instance, "insured" refers to the person who is covered by the life insurance contract, while "death benefit" is the amount that the insurer will pay to the beneficiary upon the insured's death. "Policy date" or "issue date" signifies the starting point of the policy. "Riders" are additional features that can be added to the policy, usually at an extra cost, providing extra benefits or coverage. "Account value" or "accumulation value" represents the funds within the policy that can be utilised to cover insurance costs.

Moreover, the life insurance statement assists policyholders in understanding their financial obligations and rights. It outlines the premium payments required to maintain the policy, as well as any fees, charges, or interest credited to the account. By reviewing the statement, policyholders can ensure they are meeting their payment responsibilities and that their policy remains active.

Additionally, the statement can provide information about the duration of the policy, including the policy length and any potential lapses in coverage. This information helps policyholders plan for the future and make informed decisions about their coverage needs. It is important for policyholders to periodically review their life insurance statements and consult with an agent to ensure their policy meets their expectations and provides adequate protection for their loved ones.

The two types of life insurance

A life insurance statement is a type of form that outlines the policyholder's coverage, confirming that the insured was covered starting on a specific date.

There are two main types of life insurance: term and permanent. Term life insurance provides coverage for a specific period, typically between 10 and 30 years. It is often referred to as "pure life insurance" because it has no cash value. Term life insurance is generally more affordable than permanent life insurance.

Permanent life insurance, on the other hand, provides coverage for the entirety of the insured's life. Unlike term life insurance, permanent life insurance includes a wealth-building component, allowing the policy to last indefinitely while providing other financial benefits. There are two types of permanent life insurance: whole life and universal life.

Whole life insurance is a more straightforward type of permanent life insurance. The premium remains the same for the duration of the policy, the death benefit is guaranteed, and the cash value grows at a guaranteed rate. Universal life insurance, on the other hand, offers more flexibility. Policyholders can adjust their premiums, death benefits, and monthly payments within certain limits. However, the premiums, death benefit, and cash account growth rates can vary, making universal life insurance policies more complex.

Common terms used in life insurance statements

• Beneficiaries are the people or entities who will receive the death benefit when the insured person dies. A life insurance policy can have one or more beneficiaries, and the policyholder can decide how much of the overall benefit each beneficiary will receive.
• Cash value refers to the component of a permanent policy that builds wealth over time and can be cashed out or borrowed against. Term life insurance does not have a cash value.
• Coverage date or policy date is when the life insurance became active.
• Death benefit is the amount of money that the insurer will pay when the insured person dies.
• Insurance age refers to the insured's age at the time of the policy. This could be their actual age or their nearest age, depending on the insurance provider.
• Insured is the person who is covered by the life insurance contract.
• Insurer is the company providing the life insurance contract.
• Level premiums are premium payments that remain the same throughout the policy's duration. Both term and permanent life insurance policies can have level premiums.
• Policyholder is the person or entity (such as a family trust or a business) who pays for the policy. The policyholder can be the insured person or someone else, like a parent or spouse.
• Policy length is the period during which the life insurance contract is in effect. If the insured person dies during this time, the insurer will pay out a benefit. Policy length can be a specific period, like 10 or 20 years, or it can last for the life of the insured ("permanent" policy).
• Policy loan is the value of a whole life or universal life policy that can be borrowed against.
• Premium is the monthly or yearly payment required to keep the life insurance contract active.
• Variable premiums are premiums that change over time. The policy should include a chart indicating how the premium will change.

How to understand the terminology

A life insurance policy is a contract between an insurance company and a person (or legal entity) called the policyholder. The terminology used in these contracts matters a great deal, especially when beneficiaries have to make a claim. Therefore, it is important to understand the different definitions and sections of a life insurance contract to know how your policy works and how it can help protect your loved ones in the event of your passing.

Beneficiaries are the people or entities who will receive the death benefit when the insured person dies. A life insurance policy can have one or more beneficiaries, and the policyholder can decide how much of the overall benefit each beneficiary will receive.

Cash Value refers to a component of a permanent policy that builds wealth over time and can be cashed out or borrowed against. Term life insurance does not have this feature.

Coverage Date or Policy Date is the date when the life insurance policy comes into effect.

Death Benefit is the monetary amount that the insurer will pay to the beneficiary when the insured dies.

Insurance Age refers to the age of the insured person at the time of the policy. It may refer to their actual age or their nearest age, depending on the insurance provider.

Insured is the person who is covered by the life insurance contract.

Insurer is the organisation providing the life insurance contract.

Level Premiums refer to premium payments that remain the same throughout the duration of the policy. Both term and permanent policies can have level premiums.

The Policyholder is the person or entity, such as a family trust or a business, who pays for the policy. The policyholder can be the insured person or someone else, such as a parent or spouse.

Policy Length is the period during which the life insurance contract is in effect. If the insured person dies during this period, the insurer will pay out a benefit. Policy length can be a specific term, such as 10 or 20 years, or it can be a permanent policy that lasts for the entire life of the insured.

Policy Loan is the value of a whole life or universal life policy that can be borrowed against.

Premium refers to the monthly or yearly payments required to keep the life insurance contract active.

Variable Premiums refer to premiums that change over time. The policy document should include a chart indicating how these premiums will change.

Some other terms that may be included in an annual life insurance statement are:

Account Value/Accumulation Value: The amount of money inside the life insurance policy that can be used to pay for the cost of insurance.

Surrender Value or Net Surrender Value: The amount of money the insurance company will give the owner of the policy if it is cancelled. Loans are typically borrowed from the surrender value, not the accumulation value.

Premiums Received or Premium Payments: Money paid into the policy over the past year that contributes to the accumulation value.

Insurance Charges: The cost of insurance charged by the insurance company over the past year.

Fees: Additional expense charges deducted from the accumulation value.

Interest Credited: The amount of money credited to the accumulation value due to current interest rates, dividends, or index crediting methods.

The importance of reviewing your statement

A life insurance statement is a type of form that outlines the policyholder's coverage, confirming that the insured person was covered starting on a specific date. It is important to review your life insurance statement to ensure you understand your coverage and how your policy works. Here are a few reasons why reviewing your statement is important:

Understanding Your Coverage: By reviewing your statement, you can confirm the details of your coverage, including the type of policy you have, the insured amount, and the duration of the coverage. This helps you know exactly what you are entitled to and for how long.

Identifying Key Terms: Life insurance statements contain a lot of industry-specific terminology. Taking the time to understand these terms will help you make sense of your policy. For example, it is important to know the difference between term life insurance and permanent life insurance, as well as the various components that make up your policy, such as premiums, death benefits, and riders.

Checking for Accuracy: It is important to verify that all the information on your statement is accurate and up to date. This includes personal information, policy details, and payment history. Errors or discrepancies can impact your coverage and may need to be addressed with your insurance provider.

Monitoring Policy Performance: For permanent life insurance policies that build cash value over time, reviewing your statement helps you monitor the performance of your policy. You can track factors such as account value, interest credited, and insurance charges. This helps you ensure that your policy is on track and meeting your financial goals.

Keeping Up with Changes: Insurance policies can undergo changes over time, and it is important to stay informed about any updates that may impact your coverage. Reviewing your statement allows you to identify any changes in premiums, benefits, or policy terms. It also helps you stay aware of any riders or endorsements that have been added to your policy, which may affect your coverage.

In conclusion, reviewing your life insurance statement is crucial to understanding your coverage, identifying key terms, ensuring accuracy, monitoring policy performance, and keeping up with any changes. Taking the time to thoroughly review your statement provides you with valuable insights into your policy and empowers you to make informed decisions about your financial planning and protection for your loved ones.

Frequently asked questions