Life Insurance Illustrations 101: Understanding Policy Projections

Life insurance illustrations are projections prepared by the actuarial department of an insurance company based on the policy terms, coverage, premium payments, and other details. These projections are one of the many disclosures sent to the client after issuing a life insurance policy.

The Actuarial Standards Board (ASB) sets the guidelines that actuaries follow when performing actuarial services, including the preparation of insurance illustrations. These illustrations explain how a policy will perform under specific circumstances.

Despite the differences in components, most life insurance illustrations share common elements, such as:

• Benefits that the policyholder is entitled to

• Premiums the policyholder needs to pay

• Expenses involved in policy issuance and maintenance

• Benefit and policy duration

What Are Life Insurance Illustrations Used For?

A life insurance illustration provides a financial forecast of how a policy or investment will perform over its term. This document helps clients understand the policy year by year until its maturity.

However, it’s important to note that the projections in a life insurance illustration are based on assumptions. They do not guarantee performance unless specifically marked as “guaranteed.” Policies such as pure term life insurance, credit life insurance, and annuity contracts are typically excluded from benefit illustrations, as they do not provide returns.

The National Association of Insurance Commissioners (NAIC) certifies all life insurance illustrations in the U.S. to foster consumer education and protect policyholders. This model regulation applies to individual and group life insurance policies with illustrated death benefits exceeding $10,000.

Types of Life Insurance Illustrations

1. Basic Illustration: Basic illustrations display both guaranteed and non-guaranteed elements of a policy. Guaranteed elements include benefits, premiums, interest credits, and values fixed at issuance. Non-guaranteed elements, such as fund accumulation and current benefits, are projections based on factors that may change over time.

   For example, in a universal life insurance policy, guaranteed elements include fixed premiums, while non-guaranteed elements include projected death benefits and fund accumulation values.
   

2. Supplemental Illustrations: Supplemental illustrations work alongside basic illustrations to provide additional details. These documents must refer back to the basic illustration for an in-depth understanding of guaranteed and non-guaranteed elements.
   

3. In-Force Illustrations: In-force illustrations are updates requested by policyholders to track policy performance after the first year. These updates include details like insured age, issue age, and projections for the cash value of the policy. They are useful for understanding whether a policy is on track or requires adjustments.

Life Insurance Illustrations vs. Insurance Quoting Tools

While both tools are valuable in the insurance process, they serve different purposes:

Life Insurance Illustrations Life insurance illustrations are detailed documents designed to provide clients with a financial forecast of their policy’s performance. They are often lengthy and use technical language, making them better suited for in-depth policy analysis.

Insurance Quoting Tools Insurance quoting tools are designed to simplify the insurance sales process for agents and clients. These tools help agents compare policies, analyze costs, and present options to clients in a clear and concise manner.

Why Life Insurance Illustrations Matter

Life insurance illustrations are critical for both agents and policyholders. They provide detailed insights into policy performance, helping clients make informed decisions. For agents, they serve as a valuable tool to educate and guide clients through the complexities of life insurance.

By understanding these life insurance illustrations, policyholders can gain a clearer picture of their financial future, while agents can build trust and enhance the client experience.

Start leveraging life insurance illustrations and quoting tools to provide exceptional service and help clients find the policies that best meet their needs. It's important to record the history of quotes and illustrations in your Agent CRM for record keeping.