Some Pointers on How to Read an Illustration
The typical insurance illustration is broken into three main categories and a number of sub-categories.
The main categories:
* What’s guaranteed. This can be labeled “guaranteed”; “guaranteed basis”; “guaranteed mortality charges and interest” and/or “guaranteed cash and surrender values.” This is the insurance policy’s worst-case scenario. You can do better, but the insurer is contractually obligated to make sure you do at least this well.
* What’s happening now. This can be labeled “current interest” or “assumed rate” or “non-guaranteed.” This column is usually coupled with a number, which in today’s market is probably going to range from 6% to 8%, the rate of return the company is currently paying on this type of policy.
* A midpoint between the two. This can be called “midpoint rate” or simply “illustrated” or “non-guaranteed” rate.
Under each of these categories, the illustration will show several figures on a year-by-year or five-year basis, starting from the time you bought the policy and extending to some point in the future--often until the year you reach age 100. Some of the following elements will not appear on every policy:
* The annual premium.
* The “cash value.” This is the amount you could take out of the policy at any time. In most instances, the cash value equals zero for the first several years because the cost of writing the policy, selling it and penalties imposed on consumers who cash it in early would eat up every dollar paid in premiums. This can also be called the “net cash surrender value.”
* The “accumulation value.” This figure indicates what portion of your premium is earning interest in any given year.
* The death benefit. What your heirs would receive when you die.
To shop wisely, you should compare the guaranteed columns from several insurers to get an idea of how your policy would perform even in the worst market conditions.
It is also wise to see how this company’s policies have fared in the past. You can get this information in A.M. Best Co. policy reports, which are frequently carried in large public libraries.
