Life Insurance Illustrations: How Long To Keep Them?

A life insurance illustration is a document that estimates how an insurance policy will perform over the course of its coverage. It is provided to prospective or new policy owners and outlines the benefits, premiums, expenses, and benefit and premium periods. While the components of these illustrations may differ depending on the type and complexity of the policy, there are similarities across policy forms. Policy owners are entitled to request an in-force illustration annually and should receive it within 30 days from the request. This illustration is the only way to gauge the potential future performance of a policy and to see if changes are needed to avoid problems. So, while there is no definitive answer to how long one must keep a life insurance illustration, it is recommended to refer to it periodically to ensure that your policy is performing as expected.

In-force illustrations must be requested by the policy owner

In-force illustrations are an important tool for policy owners to assess the future performance of their life insurance policy and make necessary adjustments. These illustrations are detailed projections that use current policy values, such as cash value, death benefit, and loan balance, to forecast future values based on key factors like current earnings, mortality, and expense charges.

Policy owners are entitled to request in-force illustrations from their insurance provider. This request must be made by the policy owner and can be done through their insurance agent, directly from the insurance company, or through a customer portal if available. It is recommended to request these illustrations every two to three years, as well as when considering any changes to the policy, such as missing a premium payment or taking out a policy loan.

When requesting an in-force illustration, policy owners should consider various scenarios related to current earnings rates, mortality, and expense charges. For example, they should request projections based on their current premium payments remaining steady and calculate the premium required to endow the policy at maturity. If there is a policy loan, additional scenarios can be requested, such as paying off the loan, continuing the loan while paying interest, or borrowing future premiums and loan interest to cover premiums.

In-force illustrations provide valuable insights into the potential future performance of a life insurance policy. By comparing the in-force illustration with the original sales illustration, policy owners can identify if any changes are needed to avoid problems and ensure the policy remains in force. It is a proactive approach to managing their insurance coverage and avoiding unpleasant surprises, such as unexpected depletion of cash value or premature termination of the policy.

In-force illustrations are the only way to gauge a policy's future performance

In-force illustrations are an important tool for policyholders to understand the potential performance of their permanent life insurance policy. While basic and supplemental illustrations are provided during the marketing and sales process, in-force illustrations are requested by the policyholder or provided by the insurer after the first policy anniversary. These illustrations are crucial as they are the only way to gauge a policy's future performance and ensure that no changes are needed to avoid problems.

In-force illustrations are based on current policy values, such as cash value, death benefit, and loan balance, and project future values based on current earnings, mortality, and expense charges. This allows policyholders to monitor the variables that impact their policy's performance and make necessary adjustments. Without these illustrations, policyholders may be unaware of changes made by the insurance company, which could lead to unexpected issues with their policy.

The frequency with which policyholders should request in-force illustrations varies, but it is generally recommended to do so every two to three years. Policyholders can request these illustrations through their insurance agent, directly from the insurance company, or through a customer portal if available. It is important to note that term life insurance policies, which have a specified coverage period and fixed premiums, do not require in-force illustrations.

In-force illustrations are a valuable tool for policyholders to stay informed about their permanent life insurance policy's performance and make any necessary adjustments. By requesting these illustrations periodically, policyholders can ensure their policy remains in force and performs as expected.

Illustrations are not simple charts, but hypothetical ledgers

The term "life insurance illustration" is misleading because it suggests a simple chart or picture. In reality, these illustrations are complex, hypothetical ledgers that can span 15-20 pages of text. They outline how a life insurance policy might perform under a range of circumstances and outcomes. While the specific components of these illustrations may vary depending on the type and complexity of the policy, there are common elements across all life insurance policy illustrations. These typically include the benefits entitled to a policyholder, the premiums required, expenses related to policy issue and maintenance, and the benefit and premium periods.

Life insurance illustrations are not static documents; they are based on numerous variables that are plugged into a software program by the agent. These variables include personal factors such as the policyholder's age, health rating, and family medical history, as well as financial considerations like the assumed rate of return and the payment method. By inputting these variables, the software can calculate key aspects of the policy, including the cost of insurance, policy charges, expenses, riders, and the planned premium.

The first few pages of a life insurance illustration provide an explanation of the coverage, terms, and definitions, and it is important to verify that the agent has entered the correct variables. This includes checking personal details such as age and health rating, as well as policy specifics like the premium and whether the policy has a level or increasing death benefit. These initial pages should also outline current and maximum policy fees and expenses, along with minimum guaranteed and current interest or dividend rates.

The heart of the life insurance illustration is the ledger or table, which illustrates how the policy could perform under different scenarios. Typically, there are "guaranteed" and "nonguaranteed" columns, with the former representing a worst-case scenario and the latter offering a best-case and most likely scenario. The nonguaranteed column may include two ledgers, labelled "current" or "illustrated" and "midpoint," which reflect different interest or dividend crediting rates. The illustration also includes detailed year-by-year ledgers showing the guaranteed and nonguaranteed values, as well as supplemental reports on policy fees and expenses.

Given the complexity of life insurance illustrations, it is important for prospective policyholders to carefully review the document and consider their risk tolerance and rate of return assumptions. While these illustrations provide valuable estimates of policy performance, they are based on assumptions that may not hold true over time, and actual returns may differ significantly from the projections.

Illustrations are provided to new or prospective policy owners

Items common to all life insurance policy illustrations include the benefits entitled to a policyholder, the premiums required to maintain the benefit, the expenses related to policy issues and maintenance, and the benefit and premium periods. These illustrations can be complex and difficult to understand, even for professionals. They can be up to 15-20 pages long and contain explanations of coverage, terms, and definitions, as well as ledgers or tables that illustrate the policy's performance.

The illustrations are created by agents who input various variables into a software program developed by the insurer. These variables include the policyholder's age, health rating, family medical history, payment plan, assumed rate of return, and age at the end of the policy. It is important for policyholders to review these variables for accuracy, as incorrect information can lead to poor projections and significantly alter the policy's actual performance.

In addition to the basic illustration, insurers may also provide a supplemental illustration that depicts only the non-guaranteed elements. After the first policy anniversary, policyholders may also request periodic updates on the policy's performance in the form of in-force illustrations. These in-force illustrations are especially important for permanent life insurance policies, as they can help policyholders identify if their policy requires substantially higher premiums or is at risk of terminating before maturity.

Illustrations are subject to Model #582 regulations

Model #582 defines three types of illustrations: basic, supplemental, and in-force. A basic illustration is used in the marketing of the policy and shows both guaranteed and non-guaranteed elements. The guaranteed elements include policy benefits, premiums, values, credits, and charges that are guaranteed and determined at issue. Each of these elements has a non-guaranteed counterpart that is not guaranteed or determined at issue. For example, the non-guaranteed elements of a universal life policy basic illustration include current death benefits, current fund accumulation, and the cash value and premiums related to the current benefits.

In addition to the basic illustration, a company may provide a supplemental illustration that depicts only the non-guaranteed elements permitted in the basic illustration. The format of the supplemental illustration may differ, but it must still meet the requirements for non-guaranteed elements defined for the basic illustration. The supplemental illustration must refer the policy owner to the basic illustration for guaranteed elements and other important information.

After the first policy anniversary, the company may choose to provide, or the policy owner may request, periodic updates on the policy's performance in the form of in-force illustrations. In-force illustrations are similar to basic illustrations but include the age of the insured as the issue age plus the number of years the policy has been in force.

Model #582 also includes specific requirements for the inclusion of the basic illustration in the life insurance policy delivery process. If an illustration is used in the marketing of the policy, the authorized company representative must submit the illustration, signed by both the representative and the applicant, to the insurer at the time of policy application. If an illustration is not used, both the applicant and the representative must sign a form acknowledging that no illustration was provided. If an illustration is revised before the policy is issued, the new illustration must be labeled as such. In all cases where an illustration is required, the policy must have an illustration accurately representing it and appropriately signed by the applicant or policy owner and the authorized company representative. The illustration must be provided prior to or simultaneously with the policy delivery.

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