Reading a policy illustration

Two columns, two meanings

Illustrations generally show guaranteed values alongside non-guaranteed or current-assumption values.

The guaranteed column reflects what the contract obliges the insurer to do at its minimum crediting rate and maximum charges. That column is the policy.

The non-guaranteed column projects performance if current assumptions hold for decades. It is not a promise, and small changes in assumptions compound into very different numbers by year thirty.

Read the guaranteed column first

Ask yourself whether you'd still buy this policy if only the guaranteed column happened. If the answer is no, you're relying on assumptions rather than on the contract.

That's a legitimate choice for some products, made knowingly. It's a poor one made by accident.

What to look for

• The premium required to sustain the policy under guaranteed assumptions, not just the illustrated one
• The year at which cash value first exceeds premiums paid
• Surrender values in early years, which are often far lower than people expect
• How long surrender charges apply
• The assumed crediting rate, and the guaranteed minimum
• Whether the illustration assumes premiums are paid every year, and for how many

The regulation point

Illustrations are subject to regulation precisely because projections were being used to sell policies that later underperformed. Rules constrain what may be illustrated and require certain disclosures.

That's protection, not a guarantee. The constraint limits how optimistic the projection may be — it doesn't make it accurate.

The request that matters most

If you already own a permanent policy, request an in-force illustration. It re-runs the projection from where the policy actually stands today rather than from the assumptions it was sold on.

Ask specifically what premium is required to carry the policy to a stated age under current assumptions, and under guaranteed ones. That's the question that reveals a policy quietly heading for trouble — and it's much better answered at fifty than at seventy-five.