What is a Life Insurance Policy Illustration?
A life insurance Policy Illustration will reveal how various life insurance products work. This material includes details that are relevant to an applicant’s age, gender, underwriting rate class, level of risk, and likely premiums. Permanent polices will also show how the cash value will grow and perform over the duration of the policy. Most illustrations, whether whole life or universal life, will show non-guaranteed values, as well as current values.
In addition, the illustrations show the life insurance policy’s official name, term, death benefits, premiums and cash value (where appropriate), as well as predicted dividends (depending on the company that is issuing the policy). An illustration will typically assume that conditions will remain unchanged over the period of time that the life insurance policy is held.
A life insurance illustration should not be considered as a binding contract – and it is not any type of a guarantee as to how much the policy will be worth in any give year, other than where the values are explicitly stated as being guaranteed. This is because these illustrations are really in large part an educated guess by the life insurance company as to the future policy values based on the current available information at the time that the illustration is being generated. The policy’s actual legal guarantees will be contained in the life insurance contract itself.
Note that once the life insurance policy has been issued, the insurance agent will provide the insured with an updated illustration that is based upon the actual policy that has been issued, as it may contain different assumptions than those that were shown in the illustration used in the application phase. For example, the applicant’s medical exam may have placed him or her in a higher risk category than the initial sales illustration assumed, or he or she may have changed their mind about the amount of coverage that they wanted to purchase.