What an illustration is, and isn’t
An indexed universal life illustration is a required document that shows how a policy could perform under a set of assumptions. It isn’t a forecast and it isn’t a promise. Only a small part of it is guaranteed, and that part is often on a page most people skim past.
Read it the way an underwriter would. Start with what’s promised, then look at what’s assumed, then ask what happens when the assumptions are wrong.
The columns, left to right
- Year and age. Everything else is read against these.
- Premium outlay. What you’re scheduled to pay each year. Check that it matches what you actually plan to pay.
- Accumulation or account value. The policy’s internal value after charges and credits.
- Cash surrender value. What you’d receive if you cancelled that year. In the early years it’s lower than the account value because of surrender charges. This is the number that matters if plans change.
- Loans or withdrawals. The retirement income the design assumes you’ll take.
- Death benefit. What your beneficiaries would receive, net of any loans.
Those columns appear at least twice: once guaranteed and once non-guaranteed.
Guaranteed versus projected
The guaranteed columns assume the insurer charges the maximum the contract allows and credits only the minimum, often 0% on the index account. They show the worst the contract permits.
The non-guaranteed columns, sometimes labeled current or illustrated, assume today’s charges continue and the index account earns the illustrated rate every year, without a single bad year in between.
Real results land somewhere between the two. The distance between the columns tells you how much of the design depends on assumptions holding up.
What limits the projected column
Illustrated rates aren’t set freely. Since 2015, an actuarial guideline known as AG 49 has capped the maximum illustrated rate using a lookback at the index’s historical performance. AG 49-A, effective December 14, 2020, limited how much benefit an illustration can show from bonuses and from borrowing at one rate while the account is credited at another. It holds that loan spread to 0.5%. AG 49-B, effective May 1, 2023, applied the same limits to volatility-controlled index accounts.
These rules made illustrations more conservative. They only govern what can be shown on paper. How the policy actually performs still depends on real crediting, real charges and how it’s funded.
Five checks before you sign
- Find the year the guaranteed column runs out. If it lapses at 78 under guaranteed assumptions, you should know that on day one.
- Compare surrender value to account value in years one through ten. That gap is the cost of changing your mind.
- Ask for the illustration at a rate one or two points lower. Does the policy still carry the income and stay in force to 100? A sound design survives a worse assumption.
- Read the loan assumptions. Fixed and variable loans behave very differently when rates move. Ask which one the income depends on.
- Check that the premiums are realistic. A design that works only if you fund the maximum every year for fifteen years needs fifteen years of income behind it.
What a good design looks like on paper
When Cole Whitaker designs a case, the assumptions sit next to the results. His premium-financed design for a 45-year-old executive, for example, is illustrated at 6.84% index crediting and a 6.05% initial borrowing rate, both stated right beside the outcome. That’s the standard to hold any illustration to. You should be able to see what it assumes and ask what happens when those assumptions change.
Already own a policy? The same checks apply. See IUL or annuity for when a policy fits in the first place.
General educational information. Your circumstances, applicable requirements and specific contract terms belong in an individual review with the appropriate professionals.
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