A Policy Illustration Is Not A Guarantee

Permanent life insurance is presented with an illustration: a multi-page ledger of values year by year. Some of those columns are contractual promises and some are assumptions, printed in the same typeface.

The ledger has two halves

Illustrations show a guaranteed column, built on the minimum interest rate and maximum charges the contract permits, and a non-guaranteed column built on current assumptions.

The guaranteed column is the contract. It describes what happens if the insurer exercises every right the policy gives it.

The non-guaranteed column describes what happens if current crediting rates and current charges continue unchanged for decades, which is an assumption rather than a term.

Three variables drive the difference

The crediting rate or dividend scale determines what the cash value earns, and it moves with the insurer's investment results and experience.

The cost of insurance charge is deducted from the value each period, and many contracts permit the insurer to raise it up to a stated maximum.

The premium pattern assumed by the illustration matters as much as either, because a policy funded differently than illustrated behaves differently.

Small differences compound over decades

An illustration runs to advanced ages, so a modest shortfall in the crediting rate accumulates into a large divergence by the later years.

That is why the same policy can look robust in one column and require far higher premiums in another.

Reading the guaranteed column first, rather than the illustrated one, shows the floor the contract actually provides.

In-force illustrations track the real policy

After purchase, an in-force illustration can be requested from the insurer, showing where the policy actually stands and what it projects from here.

Requesting one periodically is how a policyholder learns that a contract funded years ago is no longer on the path assumed at the time.

Discovering that late in life, when the cost of insurance is highest, leaves fewer options than discovering it early.

Regulation shapes what an illustration may show

State regulation governs illustration formats, required disclosures and what an agent may present, and those rules have been revised repeatedly.

Nothing here is a recommendation about any product or funding level, and no projection in this article or any illustration should be treated as an outcome.

A licensed agent, the insurer's policy service department and the state insurance department are the appropriate sources, and standards vary by state and change over time.