How Do You Read a Life Insurance Illustration?
The short answer to "how do I read an illustration?"
A life insurance illustration is a projection of how a permanent policy might perform. It is split into a guaranteed section, which shows what the contract promises under its worst-case assumptions, and a non-guaranteed section, which shows what could happen if current assumptions continue. Read the guaranteed side first; the non-guaranteed side is a scenario, not a commitment.
The header: assumptions that drive everything below
Before any column means anything, check the assumptions printed at the top or in the footnotes:
- Insured's age and sex as used for pricing.
- Rate class assumed — an illustration prepared at a better rate class than you are ultimately offered will not match your issued policy.
- Face amount and any riders included.
- Planned premium and how long it is assumed to be paid.
- Assumed crediting rate or dividend scale. This is the engine of the non-guaranteed columns.
If any of these differ from your actual offer, the projection below is describing a different policy than yours.
Summary: an illustration is only about you if its header assumptions match your actual offer.
The two halves of the table
Most illustrations repeat the same columns twice.
Guaranteed columns show values calculated using the contract's guaranteed minimum crediting rate and guaranteed maximum charges. This is the floor the contract commits to. For whole life, the guaranteed cash value column corresponds to the table in the policy itself.
Non-guaranteed columns show values calculated using the insurer's current dividend scale or current credited rate and current charges. These can change. A number in this half is a conditional projection.
A useful habit: cover the non-guaranteed half with your hand and ask whether the guaranteed half alone describes something you understand.
Summary: two halves, one promise — the guarantee is on the left.
Column by column
- Policy year / attained age — the row index. Note where the rows stop; an illustration that ends at a given age says nothing about the years after it.
- Premium outlay — what the projection assumes you pay that year. Watch for years where this drops to zero, which usually means the projection assumes policy values are covering the cost.
- Cash value — the accumulating value. Compare guaranteed against non-guaranteed at the same row.
- Cash surrender value — cash value after surrender charges. In early years this can be materially lower than cash value.
- Death benefit — the projected payout that year. In some designs this grows with paid-up additions; in others it is flat.
Summary: read across a single row in both halves before reading down any column.
Five things illustrations do not tell you
1. What will actually happen. Non-guaranteed columns are arithmetic applied to an assumption.
2. Whether the assumption is conservative. The illustration shows the scale; it does not evaluate it.
3. The effect of missing payments. Most illustrations assume every planned premium is paid on schedule.
4. The effect of loans. Unless a loan is explicitly illustrated, the projection assumes none.
5. Tax consequences. Those are governed outside the policy.
Summary: an illustration is a model output, and every model output inherits its inputs.
Why term policies barely need illustrations
A level term policy has almost no non-guaranteed content: a fixed premium, a fixed face amount, and a fixed end date. That simplicity is itself a structural difference, described in term vs whole life: what actually differs and how a term life policy works.
Summary: the more a product depends on projections, the more carefully the guaranteed column must be read.
Questions worth writing in the margin
- Which rate class does this assume, and is it the one I was offered?
- What happens on the guaranteed side if I pay exactly what is shown?
- What crediting rate or dividend scale produced the non-guaranteed side?
- What year does this illustration stop, and why there?
Take those questions to the licensed agent who prepared it — see what to ask a licensed agent.