Policy illustration

A policy illustration is the spreadsheet-style document an insurer or agent produces to show how a permanent life insurance policy may perform. Each row is a policy year or age, with columns for premium, cash value, surrender value and death benefit. Under the NAIC's Life Insurance Illustrations Model Regulation, which most states have adopted, an illustration used in a sale must show guaranteed values alongside non-guaranteed ones and be signed by the applicant and the agent.

The guaranteed columns use the policy's minimum interest rate and maximum charges. The non-guaranteed columns assume the current dividend scale or crediting rate stays the same for decades, which almost never happens exactly. Indexed universal life illustrations are further limited by Actuarial Guideline 49, which caps the rate an IUL illustration may assume. Say, hypothetically, an IUL illustrated at 6% shows tax-free income for 25 years; at 4.5%, the same policy might lapse years earlier.

Treat an illustration as one scenario, not a forecast. Ask for a version at a lower rate, compare the guaranteed column, and order an in-force illustration every few years once you own the policy. See how to read a life insurance illustration, how to request and read an in-force illustration and IUL illustrations and Actuarial Guideline 49.