Your Annual Life Insurance Statement: What Each Line Tells You

The annual statement is the one document most insurers send you about a permanent life insurance policy on a regular schedule. It is easy to glance at the death benefit and toss it aside, but the other numbers tell you whether the policy is on track.

What appears on your statement depends on the type of policy and on your state's rules. The National Association of Insurance Commissioners (NAIC) has model regulations that spell out what an annual report should contain, and many states base their own rules on them. This guide uses those models as a map so you know what to look for and what to ask about.

It is general information, not financial, insurance, tax or legal advice. If a figure on your own statement is unclear, the insurer is the first place to ask.

What the model rules ask a universal life report to show

Under the NAIC's Universal Life Insurance Model Regulation, the policy must provide for a report sent without charge at least annually. The NAIC's illustrations model lists the same items for universal life. A report under those models includes:

• The beginning and end dates of the report period
• The policy value at the end of the previous period and at the end of this one
• The total amounts credited to or taken from the policy value during the period, identified by type, such as interest, mortality, expense and riders
• The current death benefit on each life the policy covers
• The net cash surrender value at the end of the period
• Any outstanding loans
• A notice if, assuming guaranteed interest and charges, the net cash surrender value would not keep the coverage in force until the end of the next reporting period without further premiums

That last item is the most important line on the page. If you see it, read the section below on notices.

What a whole life or other permanent policy report shows

For other illustrated policies, the NAIC illustrations model lists, where applicable: the current death benefit, the annual contract premium, the current cash surrender value, the current dividend, how that dividend was applied, and the amount of any outstanding loan.

If your policy is participating, the dividend lines matter. The NAIC describes a participating policy as one that may pay dividends and explains that a dividend is actually a refund of part of your premium, paid when the company collects more than it needs. "May" is the key word: dividends are not guaranteed. Check how the statement says the dividend was applied, and whether that is still the option you want.

Policy value versus cash surrender value

Two numbers often look similar but mean different things. The policy value (sometimes called account value or accumulation value) is the amount in the policy. The net cash surrender value is what you would actually receive if you surrendered it, after surrender charges and outstanding loans and loan interest.

The New York State Department of Financial Services explains that if you surrender a universal life policy you may receive less than the cash value account because of surrender charges. If your statement shows a gap between the two numbers, that gap is mostly charges or loans. Watch whether it shrinks over time, as a surrender charge period winds down, or grows, as a loan balance builds.

Reading the charges on a universal life policy

New York's regulator describes how universal life works: the company credits your premiums to the cash value account, periodically deducts its expenses and the cost of insurance protection (often called the mortality deduction), and credits interest to the balance. The policy guarantees a minimum interest rate and a maximum mortality charge, but the current charges and credited rate are not guaranteed, and mortality charges increase as you get older.

So compare three totals from one year to the next: what you paid in, what was credited as interest, and what was deducted for cost of insurance and expenses. If deductions are growing faster than premiums and interest combined, the policy value will shrink, and the policy may need more money later. Our guide to universal life lapse risk explains the warning signs in more detail.

Variable life statements

Variable life works differently, and the NAIC illustrations model does not cover it. The SEC's Investor.gov explains that a variable policy's cash value varies with the premiums you pay, the policy's fees and expenses, and the performance of the investment options you chose. It lists common charges, including sales fees on premiums, surrender charges, mortality and expense risk fees, cost of insurance and administration fees.

On a variable statement, look at how your money is allocated among the investment options, the change in value for each, the total fees deducted, and any loans. Investor.gov notes that loans reduce cash value and increase the likelihood that the policy will lapse. The prospectus describes the policy's fees and options in detail.

Notices that mean "act now"

Beyond the numbers, read every notice printed on the statement. Under the NAIC models, three are especially important:

1. A warning that, on guaranteed assumptions, the net cash surrender value won't keep the policy in force to the next report without more premium. This is an early lapse warning.
2. A notice that the insurer has made an adverse change in non-guaranteed elements since the last report. The NAIC illustrations model requires the report to say so and describe the change.
3. A notice about requesting an in-force illustration. Where a report does not include one, the model calls for a prominent notice telling you that you may request one annually without charge.

If you see the first or second notice, request an in-force illustration and call the insurer to understand your options before the next due date.

A simple year-over-year check

Keep last year's statement next to this year's and note:

• Did the death benefit change, and do you know why?
• Did the cash surrender value go up or down?
• Did the loan balance grow?
• Did charges rise noticeably?
• Did any new notice appear?

If you cannot explain a change, ask the insurer in writing and keep their answer. If the response is unclear or you believe the statement is wrong, your state insurance department can help; the NAIC lists contact information for every state's department. For tax questions, talk with a licensed tax professional.

Key takeaways

• NAIC model rules list what an annual report should show; your state's version controls the details.
• For universal life, compare premiums and interest credited against cost-of-insurance and expense charges each year.
• Net cash surrender value, not policy value, is what you'd receive if you surrendered.
• Dividends on participating policies are not guaranteed; check how they are being used.
• Treat a lapse warning or an adverse-change notice as a reason to request an in-force illustration and call the insurer.
• This is general information; contact your insurer, state insurance department or a licensed professional about your own policy.

Sources

• NAIC, Universal Life Insurance Model Regulation, Model #585 (January 2001 edition)
• NAIC, Life Insurance Illustrations Model Regulation, Model #582 (April 2001 edition)
• National Association of Insurance Commissioners (NAIC), Life Insurance (consumer guide)
• New York State Department of Financial Services, Life Insurance Information for Consumers
• U.S. Securities and Exchange Commission, Investor.gov, Variable Life Insurance
• NAIC, Insurance Departments (state contacts and complaints)