How to Read a Policy Illustration

An illustration is the document that sells most permanent life insurance, and almost nobody reads it the way it was built to be read. It arrives as fifteen or twenty pages of dense columns, a friendly summary page near the front, and a signature line near the back, and the natural human response is to look at the big number in year thirty and feel either reassured or alarmed. That big number is usually the least reliable figure in the whole document, because it sits in a column the insurer has never promised to deliver.

This article is a walkthrough for reading one properly, in order, with the guaranteed column first. It covers identifying the product and the person who produced the pages, separating the guaranteed set of columns from the non-guaranteed set, finding the assumed crediting rate or dividend scale and testing what happens when it is lower, checking the premium the software assumed you would pay and for how long, locating the year the policy is projected to run out of value under the guarantees, reading the surrender charge schedule, checking any loan or withdrawal assumptions baked into the projection, and comparing two illustrations from different carriers without fooling yourself. Every figure below is a rounded illustration chosen to show the mechanics. No carrier, product, crediting rate, dividend scale, cap, or charge schedule described here is a real one, and yours will differ.

Before you start

This is a reading exercise rather than a maths exercise, and it takes about an hour if you do it properly with the document in front of you. You do not need a financial background. You need patience with tables and a willingness to ask the person who prepared the pages to explain anything that is not labelled.

Gather these before you begin:

• The complete illustration, every page, including the pages after the signature block. Summary extracts and one page proposals are marketing material, not the document described here.
• The product name and type, which is usually on the first page. Whole life, universal life, indexed universal life, and variable universal life illustrations look similar and behave very differently.
• A pen, because the useful work is circling four or five numbers and writing questions in the margin.
• The name and licence details of whoever produced it, and whether they are paid by commission, by fee, or by both.
• Any earlier illustration for the same policy, if this is a review rather than a purchase. Comparing an old projection against what actually happened is the most instructive exercise available to a current policyholder.

Difficulty: moderate. The arithmetic is simple and the vocabulary is the obstacle. Nothing in this walkthrough requires you to recompute the insurer’s figures, and you should not try. The aim is to know which numbers are load bearing, which are decoration, and which questions to put in writing before anyone signs anything.

What a policy illustration actually is

An illustration is software output. The insurer’s illustration system takes a policy design, a set of assumptions, and an input premium, and it produces a year by year table showing what the contract would do if every one of those assumptions held. It is produced before the policy exists, using the applicant’s assumed age and rate class, and it is regenerated whenever any input changes.

That origin explains most of its odd features. It is long because it must show every policy year to the end of the mortality table. It is repetitive because it shows the same years twice, once under guarantees and once under current assumptions. It carries dense legal language because it is a regulated sales document that has to state, on the page, that the non-guaranteed parts are not promises. And it exists mainly for permanent products, because a level term policy has almost nothing to illustrate: our explainer on how term life insurance works describes a contract whose entire economics fit in one sentence.

The distinction that matters most is between the illustration and the contract. The illustration describes; the policy binds. If a value appears in an illustration and not in the contract, it is a projection. If the two conflict, the contract wins, and no argument about what the illustration showed will change that. Reading an illustration well means constantly asking which of these two documents a given number lives in.

Why the guaranteed column is the one that matters

If you only ever learn one thing about illustrations, learn this: read the guaranteed columns first, before you look at anything else, and form your opinion of the policy from them. Every reading habit in this article follows from that instruction.

The reason is structural rather than cynical. The guaranteed columns are built by asking a specific question: if this insurer exercised every piece of discretion the contract gives it, in its own favour, what is the least it could deliver while remaining in compliance with the contract? That means maximum permitted charges and minimum required crediting. The answer is deliberately pessimistic, and no insurer expects to operate there. But it is the only part of the document with contractual force behind it, and it is therefore the only part you can plan around.

The non-guaranteed columns answer a different question: if current charges continue unchanged and the credited rate matches the figure the software was given, what would the contract do? Both of those inputs sit inside the insurer’s discretion, bounded by the contract. Neither is a promise. That is why the same policy, illustrated on the same day by the same person, produces radically different year thirty values depending on a single number typed into one field.

A useful mental test: cover the non-guaranteed side of the page with your hand and ask whether you would still buy the policy. If the answer is no, you are buying the assumptions rather than the contract, and you should at least know that about yourself before you sign.

Step 1: Identify the product and who prepared the illustration

Start at the front, not with the numbers. The first page normally names the product, the insurer, the insured’s assumed age and sex, the assumed rate class from underwriting, the death benefit, the death benefit option, and the person or agency that ran the pages. Every one of those is an assumption that changes the entire document if it is wrong.

Check the rate class first, because it is the input most likely to be optimistic. Illustrations are frequently run at the best class before any underwriting has happened, and a policy illustrated at a preferred class but issued at a standard class will cost more or accumulate less than the pages show. Our explainer on life insurance underwriting classes sets out how those classes are assigned. If the pages say the class is assumed or preliminary, treat every figure downstream as provisional.

Then check the product type, because the rest of this walkthrough branches on it. A participating whole life illustration turns on a dividend scale. A universal life illustration turns on a credited interest rate and a schedule of internal charges. An indexed universal life illustration turns on an assumed index crediting rate that is itself the output of caps, participation rates, and floors, described in our explainer on indexed universal life. A variable universal life illustration turns on assumed separate account returns and fund fees, covered in our note on variable universal life.

Watch out for: an illustration prepared for a different face amount, a different premium, or a different age than the one you discussed. Re-runs are cheap and the older version often stays in the folder. Confirm the header matches the conversation you actually had.

Step 2: Find the guaranteed and non-guaranteed columns

Turn to the main ledger pages, the ones with a row per policy year running from year one to somewhere in the insured’s nineties. Almost every illustration presents this ledger twice, or presents it once with two blocks of columns side by side. One block is labelled guaranteed. The other carries a label such as non-guaranteed, current, midpoint, or assumed.

Inside each block you will normally see four repeating columns: the premium assumed for that year, the accumulated or account value, the surrender or cash value, and the death benefit. Learn the difference between the second and third of those, because it is where the surrender charge hides. The account value is what the contract holds internally. The surrender value is what you could actually take if you ended the policy that year. In the early years of a permanent policy the second number can be materially larger than the third.

Some illustrations add a third block, a midpoint or intermediate scenario built from something like halfway between guaranteed and current assumptions. It is a modelling convenience rather than a probability statement, and it is not a middle estimate in any statistical sense. Read it as a third arbitrary scenario, not as the likely one.

Watch out for: a summary page near the front that shows only the non-guaranteed values with no guaranteed comparison at all. That page is not wrong, but it is not the ledger, and forming a view from it is the single most common reading error. Find the two column blocks and work from them.

Step 3: Read the assumed crediting or dividend rate

Somewhere on the ledger pages or in the basis of illustration notes there is a rate. On a universal life design it is a credited interest rate. On an indexed design it is an assumed index crediting rate. On a participating whole life design it is the current dividend scale, usually described rather than expressed as a single percentage. On a variable design it is a gross assumed separate account return.

Find it, circle it, and understand that it is an input rather than a result. Nobody has forecast it. It was typed into a field, subject to whatever limits the insurer’s software and the applicable illustration rules impose. Two things follow. First, the projected value in year thirty is extremely sensitive to it, because the difference compounds annually across decades. Second, an illustration run at a higher rate will always look better than the same policy run lower, which makes the rate the easiest place for a comparison to go wrong.

The action here is a request, not a calculation. Ask for the same design re-run at a materially lower assumed rate, and at the contract guarantees. If the policy still does what you need it to do across those runs, the design is robust. If it only works at the top of the range the software permits, you have learned something important about its fragility.

Watch out for: index linked designs where the assumed rate is presented as though it were a fixed return. It is the modelled average outcome of a formula involving a cap, a participation rate, and a floor, applied to an index that does not move smoothly. Ask what cap and participation rate the projection assumed, and whether the contract lets the insurer change either.

Step 4: Check the premium the illustration assumes you will pay

Every illustration is built on a premium stream, and that stream is an assumption exactly like the interest rate. Look down the premium column and answer three questions: how much per year, starting when, and for how many years. On many designs the premium stops at some year and the policy is projected to continue on its accumulated value, which is a projection that depends on everything above it holding true.

The gap between the illustrated premium stream and real life is where a large share of disappointing permanent policies come from. An illustration showing an illustrative $6,000 a year for twenty years assumes $120,000 arrives, on schedule, in full, with nothing missed. Skip two years in a difficult decade and the ledger you were shown no longer describes your policy. There is no page in the document that tells you what a missed year costs, because the software was never asked.

The same applies to designs where the illustrated premium is far below the maximum the contract allows, or far above the minimum required to keep it in force. Ask which of those you are looking at. A minimum funded universal life policy and a heavily funded one are the same product operating in completely different regimes, as our explainer on universal life insurance describes.

Watch out for: an illustration that shows premiums vanishing after a set number of years. That is a projection of the value covering the charges, not a contractual paid up status. Ask what the guaranteed columns show happening to the same policy after payments stop, and read our note on what happens when a policy lapses for the consequence when the projection does not hold.

Step 5: Find the year the policy lapses under the guarantees

This is the number the walkthrough exists for. On the guaranteed side of the ledger, run your finger down the surrender value column and find the year it reaches zero. On many current assumption designs it does. The value climbs for a stretch, flattens, then falls, and at some policy year the contract runs out of money and the coverage ends unless additional premium arrives.

The mechanism is not sinister. The guaranteed columns apply maximum contractual charges, and the internal cost of insurance in most permanent designs rises with the insured’s age. Eventually those rising charges outrun both the premium coming in and the value already there. The guaranteed run simply shows where that intersection falls under the harshest permitted assumptions.

What makes it load bearing is the comparison against your own timeline. In the illustrative example used throughout this article, the guaranteed columns show the value peaking around policy year twelve at roughly $34,000, then declining to zero in policy year twenty two, when the insured is 67. If the reason for buying the policy is a lifetime death benefit, a guaranteed lapse at 67 is a finding that deserves a direct conversation, not a footnote.

Many illustrations do not label this year at all. You have to find it. Ask the person who prepared the pages to point to it and to state it in writing, and ask the same question of the non-guaranteed run at a lower assumed rate. Watch out for the version of this question that gets answered with reassurance rather than a policy year; the honest answer is a number.

Step 6: Read the surrender charge schedule

Return to the two value columns from step two. The account value is the internal balance. The surrender value is what leaves with you if you end the contract. The difference in the early years is the surrender charge, and most permanent designs apply one on a declining schedule across an initial period of several years.

Work out the practical effect for the first few years rather than reading the percentages. In the illustrative example, three years of an illustrative $6,000 annual premium means $18,000 has gone in. The account value at the end of year three is an illustrative $13,000, because the first year charges are heaviest. The surrender charge still outstanding is an illustrative $4,200, leaving a surrender value of roughly $8,800. Paying $18,000 and being able to withdraw $8,800 is not a scandal, it is how the product is built, but it is a fact worth knowing before rather than after.

The schedule defines how long the money is effectively committed. A policy you might need to unwind in five years and a policy you will hold for forty are different decisions even when the ledger is identical. Ask for the year by year schedule, not a sentence summarising it, and read it next to our note on cancelling a policy for what the exit actually involves.

Watch out for: designs where a rider or a bonus feature adds a separate charge or extends the surrender period. Those appear in the basis of illustration notes rather than in the ledger, which is exactly why the pages after the signature block matter.

Step 7: Check the loan and withdrawal assumptions

Many permanent policies are sold on the strength of a projected income stream in later years, funded by loans or withdrawals against the accumulated value. If your illustration contains one, it will show up as a column of distributions starting at some policy year, with the account value continuing alongside it.

Read three things. First, when the distributions start and how long they run. Second, whether they are structured as withdrawals, as loans, or as withdrawals to basis followed by loans, because those have different mechanics and different consequences. Third, and most importantly, what the illustration assumed about the loan charge against the crediting rate. A projection where the policy credits more than the loan costs behaves entirely differently from one where it credits less.

That last point is the fragile joint in the whole structure. If a design assumes an illustrative 6.5 percent of crediting against an illustrative 5 percent loan charge, the arrangement appears to fund itself. If crediting comes in at an illustrative 4 percent while the loan charge stays at 5 percent, the balance compounds faster than the value supporting it, and the contract can be driven to a lapse. A policy that lapses with a large outstanding loan can also produce a taxable gain, which our explainers on borrowing against life insurance and whether life insurance is taxable both address in general terms.

Watch out for: an illustration where the loan stream is the entire reason the policy is attractive but the guaranteed columns show the same design failing well before the distributions begin. Ask for the distribution scenario re-run at a lower crediting assumption and put a qualified tax professional between yourself and any of it.

Step 8: Compare two illustrations with the assumptions held equal

The last step is comparison, and it is where careful readers most often go wrong. Two illustrations from two carriers are not comparable as printed, because each was run with whatever assumptions the person producing it selected. Comparing them directly compares the assumptions, not the products.

Hold these constant before comparing anything: the death benefit, the annual premium, the number of years premiums are paid, the death benefit option, the insured’s assumed rate class, every rider, and the assumed crediting rate or dividend basis. Then compare in this order. Guaranteed surrender value at years ten, twenty, and thirty. Guaranteed lapse year, if any. Surrender charge schedules. Only then the non-guaranteed values, and only if the assumed rates now match.

If a carrier will not run its product at the assumed rate the other carrier used, ask why in writing. There are legitimate answers, including product level illustration limits that differ by design. There are also less legitimate ones. Either way, a refusal is information, and a comparison built on mismatched rates is worse than no comparison. Our walkthrough on comparing life insurance quotes applies the same discipline to term pricing, where the exercise is far simpler.

Watch out for: comparing a policy you already own against a new illustration, which is the classic replacement scenario. Existing coverage carries a history the new pages cannot show, including a rate class set at a younger age. Our explainers on 1035 exchanges and policy checkups cover what that comparison has to account for.

How the two columns diverge over twenty years

The chart below shows the same policy design, the same illustrative $6,000 annual premium, and the same twenty years, read four different ways. Only the assumption changes. It is a simplified arithmetic sketch rather than an insurer’s calculation, built to make one point about sensitivity.

Two features of that picture are worth sitting with. The first is the spread between the three non-guaranteed bars, which comes entirely from a single input and no change to the product at all. The second is the guaranteed bar, which is not a scaled down version of the others because it is computed on a different charge basis. That is the structural point of the whole document: the guaranteed side is a different question, not a gloomier answer to the same one.

A worked example from cover page to lapse year

Take an illustrative case. A 45 year old nonsmoker is shown an indexed universal life design with a $500,000 death benefit and a planned premium of an illustrative $6,000 a year for twenty years. The summary page leads with a year thirty account value that looks impressive. Here is the same document read in the order this article recommends.

Step one, the header. The illustration is run at a preferred class that underwriting has not yet confirmed, so every value downstream is provisional. Step two, the ledger. The non-guaranteed block is on the left of the spread and the guaranteed block on the right, which is easy to misread at a glance. Step three, the rate. The assumed index crediting rate is an illustrative 6.5 percent, and the notes state it is a modelled outcome of a cap and a participation rate the insurer may change.

Step four, the premium. The ledger assumes $6,000 arrives every year for twenty years without exception, $120,000 in total. Step five, the guaranteed lapse year. On the guaranteed side the surrender value peaks near policy year twelve at an illustrative $34,000, declines, and reaches zero in policy year twenty two, when the insured is 67. Step six, the surrender schedule. At the end of year three, $18,000 has been paid, the account value is an illustrative $13,000, an illustrative $4,200 surrender charge applies, and the surrender value is about $8,800.

Step seven, the loans. The proposal assumes distributions beginning at policy year twenty one, funded by policy loans, with crediting assumed above the loan charge throughout. Step eight, comparison. A second carrier’s pages, run at a different assumed rate, are set aside until both are re-run on matching assumptions. The finding is not that the policy is bad. The finding is that its attractiveness rests on the assumed rate holding for decades and on every premium arriving, and that the guarantees run out at 67. That is a conversation to have before signing, not after.

Where the first year premium actually goes

One reason the guaranteed and illustrated columns diverge so far is that a permanent policy’s first year premium is not an investment with a fee attached. It is a bundle of charges with a residue that gets credited. The sketch below breaks up the illustrative $6,000 in year one.

Two implications follow from that split. The first is why early surrender values are so low: much of the early money never reached the account value in the first place, and the surrender charge then applies to what did. The second is why the guaranteed column eventually falls. If the middle segment grows every year while the premium stays level, there is a year in which it consumes everything else. Our explainer on cash value life insurance covers the accumulation side of the same machinery.

Illustrations by product type

The eight steps apply across permanent products, but the fragile joint moves depending on what you are holding.

On participating whole life, the guaranteed columns are usually the sturdiest in the category, because the premium and the guaranteed cash value schedule are both fixed by the contract. The non-guaranteed element is the dividend, which is declared annually at the insurer’s discretion and is not contractually promised however long the payment history runs. Our explainer on life insurance dividends covers how those work, and our comparison of term against whole life covers the underlying trade.

On universal life, the flexibility is the fragility. The premium is not fixed, so the illustration must assume one, and the guaranteed columns apply maximum charges against a minimum credited rate. On indexed universal life the assumed rate is itself derived from a formula, which adds another layer of assumption. On variable universal life the projected returns come from separate account funds that carry market risk and their own fees, so the illustration typically shows several assumed gross return scenarios rather than one.

The practical translation: on whole life, focus on the guaranteed cash value schedule and treat dividends as upside. On universal designs, focus on the guaranteed lapse year and the charge structure. On variable designs, focus on what the projection assumed about returns and fees, and read the fund level disclosures rather than the summary. In all cases the guaranteed columns come first.

The narrative summary and what it leaves out

Near the front of most illustrations sits a page designed to be read: a headline, two or three numbers, sometimes a graph with a rising curve. It is the page most buyers form their opinion from, and it is usually the least informative page in the document.

What it typically omits is the guaranteed run, the lapse year under guarantees, the surrender charge schedule, the sensitivity of the projection to the assumed rate, and the premium discipline the ledger depends on. None of that omission is necessarily improper. A summary summarises. The problem is that a reader who stops there has read a marketing document and believes they have read a projection.

The pages after the signature block deserve the opposite treatment. That is where the basis of illustration notes live, describing what was assumed, which charges are current versus guaranteed, what the insurer may change, and which features are riders rather than base policy provisions. Our explainer on life insurance riders covers why that distinction changes what you actually own. Read those notes with the ledger open beside them.

Questions to ask the person who prepared it

The output of this walkthrough is not a decision. It is a short list of questions, put in writing, to whoever produced the pages. Written answers matter because they are the only version that survives a change of agent three years from now.

Ask for the same design run at the contract guarantees, with nothing else changed. Ask for it run again at a materially lower assumed crediting rate or dividend basis. Ask what policy year the guaranteed columns show the surrender value reaching zero, and what age the insured is in that year. Ask for the full year by year surrender charge schedule. Ask which of the values shown are current and which are guaranteed, feature by feature. Ask whether the rate class used has been confirmed by underwriting or assumed.

Then ask two questions about the person rather than the product. How are they compensated on this sale, and would that compensation differ across the alternatives being considered? A straightforward answer is common and reasonable; commissions are how most of this market functions. An evasive answer is itself a data point.

None of these questions is adversarial and none of them requires expertise to ask. A licensed professional producing a sound design should be able to answer every one of them without difficulty, and most will do it willingly.

Common mistakes when reading an illustration

• Reading the summary page and stopping. The front page shows the non-guaranteed story with a rising curve. The ledger shows both stories. Forming a view from the first is the most frequent error in the category.
• Treating the assumed rate as a forecast. It is an input someone selected, bounded by product rules. It has no predictive content, and the projected value thirty years out is extremely sensitive to it.
• Comparing two carriers at different assumed rates. This compares the rates, not the products, and it reliably makes whichever illustration was run higher look better.
• Missing the guaranteed lapse year. It is rarely labelled and often falls at an age that matters enormously. Finding it requires running a finger down a column.
• Confusing account value with surrender value. In the early years the gap is the surrender charge, and it can be large enough to change whether the policy suits your timeline at all.
• Assuming premiums that vanish are a paid up policy. A projection of the value covering the charges is not a contractual paid up status, and the guaranteed columns usually say something quite different.
• Ignoring the pages after the signature block. The basis of illustration notes define what everything else means, and they are where the current versus guaranteed distinction is actually specified.

Troubleshooting: when the numbers do not add up

What if the illustration has no guaranteed column at all? Then it is a summary extract rather than a full illustration, and you should ask for the complete document. Regulated illustration formats for permanent products generally include guaranteed values; an extract that does not is marketing material.

What if the guaranteed column never reaches zero? On many participating whole life designs it will not, because the guaranteed cash value schedule is a contract feature. That is a genuine structural strength of that product type and worth recognising as such rather than assuming every product behaves like a current assumption universal life design.

What if a re-run at a lower rate looks completely different from the version you were shown first? That is the expected result, and it is the useful one. The size of the change tells you how much of the original proposal was resting on the assumption rather than on the contract.

What if the person who prepared it says a guaranteed only run is not meaningful? It is a fair point in the sense that no insurer expects to operate at guaranteed maximum charges. It is not a reason to decline the request. Ask for it anyway, alongside the current assumption run, and read the two together.

What if you already own the policy and the current values are far below an old illustration? That is common on older universal designs and it is a live situation rather than a historical curiosity. Request an in force illustration, which projects the existing contract forward from today’s actual value, and ask specifically what premium is now required to carry the coverage to the age you need. Our note on lapse and reinstatement covers what happens when that funding gap is not closed.

What an illustration cannot tell you

An illustration cannot tell you whether the policy is suitable for you. Suitability depends on your obligations, your timeline, your tax position, your other assets, and your tolerance for a contract you cannot easily exit, none of which the software knows.

It cannot tell you what the insurer will actually credit. It can only tell you what was assumed, and what the contract’s floor is. It cannot tell you what your premiums will look like against a household budget across twenty years of real life. It cannot tell you whether a simpler arrangement, such as term coverage sized to your obligations with the difference invested separately, would serve the same purpose. Our comparison of term against whole life frames that question, and the coverage calculator sizes the obligation the coverage is meant to protect.

It also cannot tell you how a carrier will treat you in twenty years. Illustrations model contractual mechanics, not service, claims handling, or the discretion the contract permits. Those are judgements to form separately, and a licensed professional who is not compensated on the outcome is the right person to help form them.

Your illustration reading checklist

Work through this with the document open. It is designed to be completed in about an hour.

• Confirm the header: product, insurer, insured age, death benefit, death benefit option, and whether the rate class is confirmed or assumed.
• Locate the full ledger and identify which block of columns is guaranteed and which is not.
• Circle the assumed crediting rate, dividend basis, or gross return, and note whether it is fixed or derived from caps and participation rates.
• Read the premium column: amount, start year, and how many years of payments the projection assumes.
• Run a finger down the guaranteed surrender value column and write down the year it reaches zero, and the insured’s age in that year.
• Compare account value against surrender value for years one to ten and note the size of the gap.
• Find the year by year surrender charge schedule in the notes, not just the summary sentence.
• Identify any loan or withdrawal stream, when it starts, how it is structured, and what crediting was assumed against the loan charge.
• Read every page after the signature block, especially the basis of illustration notes.
• Write the questions from the section above and send them in writing.
• Request the guaranteed only run and one lower rate run before making any decision.
• Take the answers to a licensed professional who is not compensated by the outcome of this particular sale.

Put your own numbers in

The companion beside this article turns the arithmetic above into your own figures. Enter the annual premium the illustration assumes, how many years it assumes you pay, the assumed crediting rate on the pages, an illustrative share of premium credited after charges, and the guaranteed surrender value the ledger shows at that year. It will produce an illustrative projected value, the total you would have paid in, and the gap between the guaranteed figure and the illustrated one.

Treat the output as a sensitivity tool, not a substitute for the ledger. It uses simple annual compounding on a net contribution, which is not how an insurer’s system computes anything; real illustrations apply charges monthly, vary them by policy year, and adjust for the insured’s age. What the companion does show honestly is how violently the projected figure moves when the assumed rate moves, and how far the guaranteed column can sit below the number on the summary page. Change the rate by a point and a half and watch the year twenty figure. If the exercise leaves you unsure whether the death benefit on the pages is even the right size for your obligations, the coverage calculator answers that question separately and far more cheaply. Then take your actual pages, and the questions from this article, to a licensed insurance professional.

The bottom line

An illustration is the most persuasive document in the life insurance sale and the least binding. It is built from assumptions someone selected, it is regenerated the moment any of them changes, and the number most readers anchor on lives in the one part of the page nobody has promised. The contract is what binds, and the guaranteed columns are the closest the illustration comes to describing it.

Read them first. Find the guaranteed lapse year and the insured’s age in it. Read the premium the software assumed and ask honestly whether you will pay it every year for twenty. Read the surrender schedule and decide whether the commitment matches your timeline. Then ask for the same design run at the guarantees and at a lower rate, in writing, and judge the policy on those pages rather than on the summary at the front. A permanent policy can be an entirely reasonable thing to own. It should be bought from the columns that are promised, not from the ones that are drawn.

CoverKin sells nothing and receives nothing from any insurer whose illustration you are reading, and this walkthrough is educational material about how illustration documents are constructed rather than insurance, tax, or legal advice about a policy you own or are considering. Every figure used above, including the illustrative $6,000 annual premium, the $174,700 and $19,000 year twenty comparison, the $4,200 surrender charge, and the assumed rates of 3, 5, and 6.5 percent, is a rounded arithmetic sketch invented to show mechanics; it describes no carrier, no product, no crediting rate, no dividend scale, no cap or participation rate, and no charge schedule that exists. Illustration formats, charge structures, guaranteed minimums, surrender periods, loan provisions, and the rules governing what may be illustrated all vary by product, by insurer, by product generation, and by state, and they change over time. Life insurance is a Your Money or Your Life subject and a permanent policy is difficult and expensive to unwind, so read your own contract rather than any summary of it, get the guaranteed only run and every answer in writing, and put a licensed insurance professional, plus a qualified tax professional wherever policy loans or a replacement are involved, between you and anything you cannot reverse.

Edited by Hamza Hai, MBA · Editor

Hamza Hai is the editor of CoverKin. She holds an MBA and reviews the site's articles against our editorial standards, checking that every figure is labelled for what it is, that nothing is presented as verified fact without a source the reader can check, and that the writing stays useful to a non-specialist.

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