Life Insurance Illustrations

last updated 09/14/22

Issue: One of the disclosures available to life insurance consumers is the life insurance illustration. An illustration is a presentation or description provided to new or prospective policy owners that shows how the policy should perform under the specific circumstances set forth in the illustration. Although the components of the illustrations may differ depending on the type and complexity of the policy, there are similarities between the policy forms. Elements common to all life insurance policy illustrations include the benefits to which a policyholder is entitled, the premiums required to maintain the benefit, the expenses associated with issuing and maintaining the policy, and the periods benefits and premiums.

Reading: What is life insurance illustration

general description: Life insurance illustrations are subject to the model life insurance illustrations regulation (# 582). the purpose of model #582 is to “provide rules for life insurance policy illustrations that will protect consumers and encourage consumer education.” applies to all individual and group life insurance policies and certificates with illustrated death benefits in excess of $10,000. exceptions to this include variable life insurance, credit life insurance contracts, and annuities.

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The model allows the insurer to choose whether a policy form will be marketed with an illustration. For policy forms actively marketed prior to the effective date of the regulation, the insurer is required to identify the forms that will use an illustration in the sales process. policy forms issued after the effective date of the regulation must include similar identification at the time of filing. for any policy form identified as one that will not be marketed with an illustration, the insurer is prohibited from providing an illustration for any policy that uses that form prior to the policy’s first anniversary.

model #582 defines three types of illustrations: 1) a basic illustration; 2) a supplementary illustration; and 3) a current illustration. The basic illustration is used in the marketing of the policy and shows the guaranteed and non-guaranteed elements of the policy. Among the guaranteed elements are the benefits of the policy, the premiums, the values, the credits and the charges that are guaranteed and determined in question. each of these elements has a non-guaranteed counterpart in the basic illustration that is not guaranteed or determined in question. Using a basic illustration of a universal life policy as an example, non-guaranteed items include current death benefits, current fund accumulation, and cash value and premiums related to current benefits. these values ​​are subject to the minimum values ​​provided by the policy guarantees, and may not provide more favorable values ​​than the illustrated values ​​based on the company’s actual recent historical experience.

In addition to the basic illustration, the company may provide a supplemental illustration showing only the non-guaranteed elements permitted in the basic illustration. the format of the supplemental illustration may differ from the basic illustration, but it is still subject to the requirements for non-guaranteed elements defined for the basic illustration. the supplemental illustration should refer the policyholder to the basic illustration for the guaranteed elements and other important information.

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After the first anniversary of the policy, the company may choose to provide, or the policy owner may request, regular updates on the performance of the policy. these updates are provided in the form of current illustrations. all aspects of the current illustration are as the basic illustration, including listing the age of the insured as the age of issue plus the number of years the policy has been in force.

Model #582 contains specific requirements related to the inclusion of the basic illustration as part of the life insurance policy delivery process. the requirements state that if the policy marketing includes an illustration and the policy is requested as illustrated, the authorized representative of the company must submit the illustration, signed by that representative and the applicant, to the insurer at the time of application for the policy . If an illustration is not used in the sale of the policy, both the applicant and the company’s authorized representative must sign a form provided by the insurer acknowledging that no illustration was used. if an illustration is submitted prior to application and then revised before the policy is issued, the new illustration must be labeled “revised illustration.” In all cases where an illustration is required, the requested or issued policy must have an illustration that faithfully represents the policy and duly signed by the applicant or owner of the policy and the authorized representative of the company. the illustration must be provided before or simultaneously with the delivery of the policy.

To provide guidance for policies whose benefits are linked to an external index or indices, the NAIC adopted Actuarial Guideline Xlix: Applying the Life Illustrations Model Regulation to Policies with Index-Based Interest (ag 49) on Aug. 16, 2015. ag 49 was developed to bring uniformity to policy illustrations linked to an external index(es) by providing a reasonable cap on the illustrated credited rate. consistency across illustrations helps customers compare policies from different companies more easily.

state: the naic encourages states to adopt model laws and regulations designed to inform and protect insurance consumers. Model #582 provides rules for life insurance policy illustrations that will protect consumers and encourage consumer education. life insurance and annuities are regulated by state insurance commissioners. consequently, state insurance departments provide regulatory oversight to ensure that all companies under their jurisdiction meet the standards defined in the model.

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