What is a Disclosure Statement?
A disclosure statement is a written document that you should receive when buying life insurance. It outlines all of the key aspects of your policy. State law often requires the life insurance provider to issue you a disclosure statement before you agree to the policy terms.
Why disclosure statements matter
There was a time when the life insurance industry wasn’t viewed favorably by the public, largely because agents were selling policies that consumers didn’t fully understand. To correct that, many state legislatures passed laws requiring insurance companies to issue disclosure statements to life insurance applicants.
These statements are designed to condense all of the important features of a policy into a digestible document. Generally, a disclosure statement should include:
Policy terms and conditionsMain policy features, like a cash value component and how it will operateThe policy’s benefits and risksAny riders attached to the policy
Using a disclosure statement
There are two key things you should take away from the disclosure statement of any policy you’re considering.
First, you should be clear on how the policy will work. If you’re buying permanent life insurance, for example, you should be able to use the disclosure statement to understand how that policy’s cash value will grow and your options for using the cash value. Similarly, if you’ve added any riders to the policy, the disclosure statement should outline what they are and how they will function.
Secondly, and just as importantly, the disclosure statement should make clear your responsibilities as the policy owner. Generally, this comes down to being truthful on the life insurance application (your own disclosure responsibility) and paying your premiums on time.
In short, by the time you finish reading through a disclosure statement, you should have a comprehensive understanding of the life insurance policy at hand.