What is an Inforce Illustration?
When is the last time you talked to your insurance
agent? Are you keeping up with the performance of your
whole life or universal life insurance policy? If not,
you should be! You should request an inforce illustration
of your policy today.
An inforce illustration is a picture
of your insurance policy as it stands now. It will show
the exact results of what has happened from the initial
policy inception to today with future projections based
on current assumptions. Inforce illustrations are extremely
important tools for evaluating the performance of your
policy over time. You should obtain an inforce illustration
of your policy annually or at minimum every other year
to assure that your policy is meeting the objectives
outlined when you initially purchased the policy.
When you bought your whole life or universal life policy,
you likely made your decision partly on the illustration
that was presented to you by the agent. What most people
do not understand is that life insurance illustrations
are only marketing tools designed to explain the basics
of the policy. In no way do illustrations guarantee a
policy’s future performance. In fact, policy performance
is likely to vary from the initial sales illustration
within the first policy year. Illustrations are advertising
and promotion materials designed to sell more insurance
so comparing and buying policies based on illustrated
projections is not a wise strategy.
Many EIUL, universal and variable universal life insurance
policies have non-guaranteed variables that will change
over time. Among these variables are interest rate fluctuations,
varying investment results and cost of insurance charges.
Any or all of these factors has a dramatic affect on
how a policy will perform in the future. A life insurance
sales illustration has no way of showing future changes
and therefore can only offer projections based on today’s
circumstances moving forward. These projections will
most certainly be different than what happens in reality.
An inforce illustration is designed to measure the performance
of a life insurance policy against what was initially
illustrated. By obtaining an inforce illustration, a
policy owner can monitor the effectiveness of the policy
to date and project how the policy may perform in the
future. If the policy has not performed to the level
originally anticipated, changes can be made to the policy
to improve future performance. For example, if interest
rates drop, cash values will not grow as fast as originally
illustrated. In this case, policy premiums can be increased
to offset the reduced interest credits to the policy’s
cash values. If premiums are not increased to make up
for the lost interest credits, the cash value growth
will be significantly lower that anticipated and the
long term stability of the policy maybe in jeopardy.
The use of inforce illustrations allows for intelligent
policy adjustments that may mean the difference between
having a strong insurance policy and having a policy
that lapsed due to poor performance.
