Life Insurance Illustrations 101: What You Need to Know

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What are Life Insurance Illustrations?

After issuing a life insurance policy, the life insurance illustration is one among the many disclosures sent to the client. It is a set of projections that the actuarial department of your insurance company prepares based on your client’s policy terms, coverage, premium payments, and other details. 

The Actuarial Standards Board (ASB) is an organization that sets standards for actuarial practice in the United States. The board describes the procedures that the actuaries must follow while performing actuarial services, including standards around illustrations. 

The illustration is a depiction provided to the new policy owner that explains how the policy will perform under specific circumstances. Despite the differences in illustration components depending on the complexity and duration of the insurance, policy forms are usually similar. 

There are three types of insurance illustrations: basic illustration, supplemental illustration, and in-force illustration. Items that are common to all life insurance illustrations are:

  • Benefits that the policyholder is entitled to
  • Premiums the policyholder needs to pay
  • Expenses involved in policy issue and maintenance
  • Benefit and policy duration

What are Life Insurance Illustrations Used For?

A life insurance illustration can be described as a set of projections prepared by an insurance illustration actuary. The document helps clients understand their financial forecast by describing how the policy or the money invested will perform over a period of time. It is used to analyze the financial projection for each policy year until maturity throughout the policy’s term. 

Keep in mind that the projections set in the benefit illustration are based on assumptions only. Having said that, it does not guarantee that the policy will perform exactly as mentioned in the illustration, except where the elements are specifically marked as “guaranteed.” It’s noteworthy that benefit illustration does not apply to plans that do not provide any return, such as pure term life insurance policy, credit life insurance, and annuity contracts. 

The type of illustration explains how it is used in practice. The National Association of Insurance Commissioners (NAIC) certifies all life insurance illustrations in the US. The intent of insurance illustrations is to protect consumers by fostering consumer education. 

The NAIC life insurance illustrations model regulation is applicable to all individual and group life insurance policies and certificates displaying illustrated death benefits exceeding the overall amount of $10,000.

Basic Illustration: Basic illustration is used to market the policy displaying both the guaranteed and non-guaranteed elements. The guaranteed elements of the policy include the benefits, premium payments, interest credits, and policy values guaranteed at the time of policy issuance. Non-guaranteed elements, on the contrary, are elements that are not determined at issue. 

Take universal life insurance as an example. The non-guaranteed elements of the policy include current death benefits, guaranteed values, premiums, and current fund accumulation related to current benefits. 

Supplemental Illustrations: It is a type of illustration that works along with basic illustration to meet the needs of the rule. A supplemental illustration depicts the illustrated scale of non-illustrated elements permitted in basic illustration. However, the format of both the illustrations may differ.

The supplemental illustrations must refer the policyholder to the basic illustration for an in-depth understanding of the current scale, guaranteed elements, and other relevant information. The illustrations are also considered self-supporting financial documents. 

In-force Illustrations: Sometimes, the policy owner requests policy updates to understand the policy performance after one year of the policy’s effective date. In this case, the life insurance company issues these updates in the form of in-force illustrations. Similar to the basic illustration, the in-force illustration also includes the listing of the insured age and the issue age, as well as the number of years until the date the policy is active. 

Basically, the in-force illustration gives an estimate of how the cash value of the life insurance policy will change over time. It lets you know if your life insurance policy is healthy or warns you well in time if your policy needs more funding.  

Insurance Illustrations vs. Insurance Quoting Tool 

A powerful insurance illustration helps the purchasers stay up-to-date with the policy performance by getting insights into every policy year. On the other hand, the insurance quoting tool is designed to help insurance agents pick the right plan after carefully analyzing the life insurance plans, cost of insurance, and coverage benefits they offer.  

Insurance Illustrations

An insurance illustration is a narrative summary of the policy designed to inform potential buyers about the plan purchased. It also helps the insurance agents in their policy sales process. The life insurance policy illustrations are based on a set of assumptions extending to microeconomic forecasts, such as interest rates. The illustration is usually 10 pages long with a numeric summary of guaranteed and non-guaranteed elements. 

Understanding the benefit illustration is as important as knowing your policy terms before buying it. It gives you an explanation of the insurance coverage and definitions of the industry terms used in the policy. No two life insurance illustrations are the same as they are prepared based on certain assumptions and factors. 

Insurance Quoting Tools 

Unlike insurance illustrations, the insurance quoting tools are easy to use and understand for policyholders. The insurance illustrations are too complicated due to the formal language and industry terms used to prepare them. The insurance quoting tool, on the other hand, helps advisors to present their pitch like a pro

For example, iLife’s browsing tool is more than just insurance quoting software. It was designed to keep the needs of both clients and the insurance agents in mind. Agents can fetch insurance quotes from the best insurance providers to discover a policy that fits the insurance needs of individual clients. The Advanced Analytics feature prepares insurance illustrations in real-time, including permanent life insurance, variable life insurance, universal life policies, and more. 

Go Above and Beyond with iLife’s Browsing Tool

While insurance illustrations certify how the guaranteed and non-guaranteed elements of the policy will perform from the effective date until maturity, the insurance quoting tool educates the insurance agent about different policies to simplify the sales process.  

iLife’s life insurance software gives an in-depth description and precise understanding of different insurance policies right in one place. Insurance agents can compare life insurance policies from the best providers across the insurance industry to suggest the most appropriate plan to prospects. 

If you are an insurance agent and looking to deliver the best services to life insurance purchasers, sign up to iLife today.  

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