LEARNING HUB
Reading A Life Insurance Illustration
A life insurance illustration shows policy values under specified assumptions. To read it usefully, begin by separating what the contract guarantees from the values that are not guaranteed.
The National Association of Insurance Commissioners describes basic illustrations as including guaranteed and non-guaranteed elements. Look for those distinctions in the document you receive. Ask the agent to explain which premiums, charges, benefits and values fall into each category.
Do not judge an illustration only by a large number many years in the future. Ask what funding is assumed and what could happen if the actual experience is less favorable. Understand how the results are affected by policy costs and any planned withdrawals or loans.
Also ask how you can review the policy after purchase. An in-force illustration can help show its current position under updated assumptions. Compare that information with the actual policy contract and annual statement.
Try this today: Circle one guaranteed value and one non-guaranteed value on a sample illustration. Write down what would need to happen for the non-guaranteed value to be achieved.
Further learning: NAIC, Life Insurance Illustrations. https://content.naic.org/insurance-topics/life-insurance-illustrations
Check that you are comparing the same question
Before comparing projected values, identify the coverage amount, premium pattern, assumptions and policy provisions in each illustration. A difference in any of those items can change what the figures mean.
Ask about a less favorable experience
Request an explanation of the guaranteed values and the effect of changing assumptions. Ask which costs continue and what may be required to keep the coverage in force. A careful discussion considers more than the most attractive projection.
Connect the illustration to the contract
Ask where an important provision appears in the policy and who can explain it after purchase. Keep a record of the questions you asked and the documents you received. The actual contract and its provisions are central to understanding the coverage.
Try this: Identify one guaranteed item, one projected item and one cost you want explained before you compare policies.