A life insurance policy illustration is a detailed projection document that shows how a permanent life insurance policy is expected to perform over time. Understanding how to read an illustration is essential for evaluating permanent life insurance products and making informed decisions. Illustrations are required by NAIC (National Association of Insurance Commissioners) regulations and are provided during the sales process.
Every illustration has two columns of projections: guaranteed values and non-guaranteed (current/projected) values. The guaranteed column shows the minimum performance the policy will deliver, based on the contractual guarantees (minimum interest rates, maximum charges). The non-guaranteed column shows projected performance based on current assumptions (current interest rates, current charges, current dividend scales or index credits). Actual performance will fall somewhere between these two columns.
Key figures to examine in an illustration include the annual premium, the cumulative premiums paid, the guaranteed cash value and death benefit at various ages, the projected (non-guaranteed) cash value and death benefit, the policy charges and cost of insurance deductions, and the net surrender value (cash value minus surrender charges). For IUL illustrations, pay attention to the assumed index credit rate (which may be optimistic), the cap rate (typically 8% to 12%), the floor (typically 0%), and the impact of policy fees.
When reviewing an illustration, focus on the guaranteed column as the baseline — this is what the policy will deliver at minimum. The non-guaranteed column shows what could happen under favorable conditions but is not promised. Compare illustrations from multiple carriers on both guaranteed and projected bases. Dividends on whole life are not guaranteed. A licensed agent in our network can walk you through illustrations from multiple carriers.