Life insurance policy illustrations are projections for how a policy will perform in the years to come. If you’re shopping for life insurance, chances are, each company and agent you contact will offer you one or more of these “illustrations” that purportedly demonstrate the true cost of the insurance and the policy’s future cash value, if any. For customers, these illustrations provide information that can be useful—that is, if you know exactly what you’re looking for.
Ever since such illustrations came into use (about the time insurance agents began using automated software), generally they’ve been viewed with skepticism. At best, many have been misunderstood; and, at worst, used—either negligently or intentionally—to create unrealistic expectations. In recent years, as some policies have failed to meet their illustrated performance goals, consumers claiming to have been misled have filed numerous lawsuits.
Who’s at fault here? Some would say:
All three could share in the blame, but instead of focusing on that, let’s look at what we know for certain:
The only promises a life insurance company makes when it sells a product are its contractual guarantees. Illustrations are not promises—they are merely hypothetical scenarios of what might occur if certain (disclosed and undisclosed) assumptions come true.
Don’t Take Premiums at Face Value
The fact is, life insurance companies can illustrate any non-guaranteed numbers they want, including non-guaranteed premiums, “vanishing premiums,” cash values and death benefits. There is no accountability for the reasonableness of the assumptions in these illustrations. As a result, comparing policies based on non-guaranteed assumptions has been—and will continue to be—a notoriously unreliable method of determining which policy actually offers the best value for the money.
Of what value, then, are illustrations in helping you examine the relative merits of various policies? They can be useful in comparing what each company is willing to guarantee contractually. Beyond that, consider who’s making the guarantee. Is the company highly rated and financially stable? That’s important, but even then you must exercise caution.
Many top-rated organizations offer good combinations of low prices and strong guarantees, but others may charge more and guarantee less, relying on their financial ranking and reputation to get buyers to simply “trust” them to deliver long-term values.
Two Key Questions to Ask
To avoid misunderstanding what life insurance policy illustrations mean, you can ask these two simple questions:
Insurance illustrations by nature are complex—and you shouldn’t expect to be able to effortlessly decode them without the help of an insurance specialist. However, if you know to ask the right questions, you may be able to get the answers you need to decide if a particular policy is right for you. After all, shopping for insurance is one thing you shouldn’t take with a grain of salt.
AccuQuote has been a leading life insurance company for over 25 years. AccuQuote works with many top-rated life insurance carriers to help customers find the best and most affordable coverage. Learn more or get a quick and free quote by clicking here or calling 1-800-913-2138.