What is the purpose of life insurance illustrations?

First, let us be clear on what an illustration is not.

 

An illustration is not intended to be a prediction, estimate or guarantee of actual future investment performance! If there are any guarantees, they must be clearly expressed as such in the illustration. The advisor cannot promise anything that's outside of the illustration's guarantees, and can never promise higher returns in order to make a sale!

 

Now, let's examine what is in fact the purpose of an illustration.

 

Put simply, the illustration is intended to show how a policy will work. They can help you understand the features and benefits of the recommended life insurance policy, as well as the mechanics behind the cash value build-up.

 

The illustrations of cash value must also contain reasonable assumptions for interest rates and life expectancy.

 

CLHIA illustration guidelines

 

The Canadian Life and Health Insurance Association (CLHIA) has published guidelines regarding the preparation of sales illustrations. They indicate what information must be provided in a life insurance illustration. For example, where non-guaranteed amount are included, the illustration must display at least two scenarios of illustrated results. The general basis for each scenario and the key assumptions for each must be outlines in the illustration. One goal of various illustration scenarios is to provide insights into the sensitivities of future policy values to changes in the underlying assumptions.

 

Every illustration must include at least one scenario that falls within a suitable range and one scenario that is less favourable (an alternate or reduced illustration).

 

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What is a reasonable period of time an illustration should consider?

 

 

 

Click a link below to jump to another section of the article:

 

How does the interest rate chosen make a significant difference in investment returns?

 

What are reasonable interest assumptions for Universal Life plans?

 

How should I consider interest bonuses?

 

What are reasonable interest assumptions for Whole Life plans?

 

Summary of life insurance traps to avoid.

 

Contact a professional broker for your free consultation.

 

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