Life Insurance Illustrations

Last Updated: 1/31/2024

Issue: One of the disclosures available to life insurance consumers is the life insurance illustration. An illustration is a presentation or depiction provided to prospective or new policy owners that shows how the policy should perform under specific circumstances set out in the illustration. While the components of illustrations may differ depending on the type and complexity of the policy, there are similarities across policy forms. Items common to all life insurance policy illustrations include the benefits entitled to a policyholder, the premiums required to maintain the benefit, the expenses related to policy issue and maintenance, and the benefit and premium periods.

Overview: Life insurance illustrations are subject to the Life Insurance Illustrations Model Regulation (#582). The purpose of Model #582 is to “provide rules for life insurance policy illustrations that will protect consumers and foster consumer education.” It is applicable to all group and individual life insurance policies and certificates with illustrated death benefits exceeding $10,000. Exceptions to this include variable life insurance, credit life insurance contracts, and annuities.

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 a similar identification when filing. For any policy form identified as one not to be marketed with an illustration, the insurer is prohibited from providing an illustration for any policy using that form prior to the first policy anniversary.

Model #582 defines three types of illustrations: 1) a basic illustration; 2) a supplemental illustration; and 3) an in-force illustration. The basic illustration is used in the marketing of the policy and shows both guaranteed and non-guaranteed elements of the policy. Among the guaranteed elements are policy benefits, premiums, values, credits, and charges that are guaranteed and determined at issue. Each of these elements has a non-guaranteed counterpart in the basic illustration that is not guaranteed or determined at issue. Using a universal life policy basic illustration as an example, the non-guaranteed elements include current death benefits, current fund accumulation, and the cash value and premiums related to the current benefits. These values are subject to the minimum values provided by the policy guarantees, and they cannot provide values more favorable 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 that depicts 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 must refer the policy owner to the basic illustration for guaranteed elements and other important information.

After the first policy anniversary, the company may choose to provide, or the policy owner may request, periodic updates on the policy’s performance. These updates are provided in the form of in-force illustrations. All aspects of the in-force illustration are like the basic illustration, including listing the age of the insured as the issue age plus the number of years the policy has been in force.

Model #582 contains specific requirements concerning the inclusion of the basic illustration as part of the life insurance policy delivery process. The requirements state that if marketing the policy includes an illustration and the policy is applied for as illustrated, the authorized company representative must submit the illustration, signed by that representative and the applicant, to the insurer at the time of policy application. If an illustration is not used in the sale of the policy, both the applicant and the authorized company representative must sign a form provided by the insurer acknowledging that no illustration was used. If an illustration is presented prior to application and is later revised before the policy is issued, the new illustration must be labeled “Revised Illustration.” In all cases where an illustration is required, the policy applied for or issued must have an illustration accurately representing the policy and appropriately signed by the applicant or policy owner and the authorized company representative. The illustration must be provided prior to or simultaneously with the policy delivery.

To provide guidance to policies whose benefits are tied to an external index or indices, the NAIC adopted Actuarial Guideline XLIX—The Application of 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 the illustrations of policies tied to an external index or indices by providing a reasonable cap on the illustrated credited rate. Uniformity across illustrations helps clients to compare the policies of different companies more easily.

Status: 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 foster consumer education. Life insurance and annuities are regulated by state insurance commissioners. Accordingly, state insurance departments provide regulatory oversight to ensure all companies under their jurisdiction abide by the standards defined in the model.