• David H. Kinder, ChFC

Understanding Life Insurance Illustrations: A 30,000 Foot Overview

Updated: Dec 28, 2019

Life insurance illustrations are meant to be a "disclosure document" of sorts, but that doesn't mean that "what you see is what will be".

There are a few things that can and will change.

1) Dividend scale on Whole Life &/or Index Cap rates on Indexed Universal Life

Life insurance illustrations use today's assumptions and carry those assumptions forward into the future in the illustration. The current dividend or assumed annual indexed interest return is projected forward - and not projected any higher than what is currently allowed by law. This means that dividends and indexed cap rates can and will change - either higher or lower, depending on the interest rate environment and other underlying factors to the insurance company.

2) Loan rates may fluctuate over time

Particularly for variable interest loan rates, they will change according to the interest rate environment, just as whole life dividend rates and indexed interest cap rates will change.

3) Any other changes as illustrated in the policy will NOT happen automatically.

The illustration is simply a calculation of how the policy will function if these illustrated events happen with the current assumptions, as above. Example 1: If your illustration shows that, after a funding period of 10 years, that the illustration shows a material change of changing from Death Benefit Option B (increasing death benefit) to Death Benefit Option A (level death benefit)... that will not happen automatically. This is only an illustration of how the policy will respond if and when you did that per current assumptions. To do this would require that the client contact the insurance company and request this modification. It would typically require a form to be completed and sent in. And yes, your agent can help you to do that.

Example 2: If your illustration shows that you took out a short term loan and repaid it back in 5 years... it won't happen automatically unless you actually make those payments back to the policy's loan.

Example 3: If you chose to fund your policy LESS than it was illustrated, the policy will not only perform poorly, but it will increase the possibility of lapsing the contract and losing everything you had put into it.

The CEO Emeritus of LifeHappens.org, Marvin Feldman, CLU, ChFC, RFC is known to say this:

"Every life insurance illustration is subject to the rule of 1-to-100: In one year, 100% of your illustrations will be wrong. So it is more important to understand WHY they bought what they bought, not just WHAT they bought."

So just be aware that just because something is in print, does not have any guarantees that things will happen exactly as it is "projected" or "illustrated". David H. Kinder | Lifetime Tax & Wealth Educator Dynamic Advanced Insurance, Financial, and Retirement Strategies


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David H. Kinder, ChFC® is regulated by the California Department of Insurance as a life, accident & health insurance agent (CA Insurance License #0E54187)​.  This communication is strictly intended for individuals residing in the state(s) of CA. No offers may be made or accepted from any resident outside the specific states referenced until proper state insurance licensing and company appointments are secured for that given state. David Kinder Insurance and Financial Solutions is the marketing name for David H. Kinder, ChFC® and is not affiliated with any other company.  Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing company. Guarantees do not apply to the performance of any particular index option on fixed indexed insurance contracts, or on projected dividends on participating insurance contracts.  Not all recommendations necessarily require insurance product purchases. Not all products are appropriate or available for all situations. Results are not guaranteed and are subject to individual situations and circumstances. Listing company client access links under the "Client Access" menu does not constitute any endorsement, filing, or approval of this website or its content by such listed companies.  Client access links are provided for client convenience only.

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