Life Insurance Illustrations

Learn to Read a Term or Whole Life Insurance Illustration

Life insurance illustrations may seem like an overly complicated and indecipherable set of numbers, but for those who take the time to understand them, they can be valuable tools for comparing the prices of life insurance policies. A life insurance illustration is a set of projections of the money that goes into and out of the life insurance policy. These projections can give a potential policyholder an idea of what he or she can expect to pay in premiums in coming years, how much he or she can expect to receive back from the insurance company if the policy is terminated at any year after the policy has been in effect, and the amount that beneficiaries can expect to receive if the insured dies before the policy matures.

Prices will probably not vary greatly among insurance companies for those who purchase term life insurance policies. The premiums are based mainly on life expectancy, which is calculated from actuarial tables that are fairly standard in the insurance industry. Actuaries predict how long a policyholder may live according to age and lifestyle. A young person in good health who does not smoke can expect to pay lower premiums than an older person who smokes. The illustration for a term life insurance policy will reflect this.

Ask For Help If You Need To

Life insurance illustrations are more complicated for those who purchase whole life or variable life insurance policies. The illustrations for these policies will reflect premiums based on actuarial data on the insured’s life expectancy, but will also reveal how well the insurance company expects to do on investing the premiums. Interpreting these numbers may require the help of an accountant or financial advisor. The time and expense of doing so may be worthwhile, as the illustrations by different life insurance companies may reveal the financial strength of the companies, and may reveal how much of the premiums are going to pay sales costs during the first few years of the policy.

Compare Illustrations From Different Companies

What may seem like the best deal at first glance may not always turn out to be the best deal. Lower premiums may mean that a life insurance company may not be stable enough in the future to pay claims. An illustration that shows optimistic rates of return on investment may be unrealistic if a significant portion of premiums in the first few years of a policy are used to pay sales costs instead of being invested. A careful review of life insurance illustrations can provoke questions about these issues, which can lead to the best coverage at the most reasonable cost.