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

The primary purpose of a life insurance plan to provide funds to your beneficiaries in the event of your untimely and premature death. Therefore, it is important that the illustration consider the long-term nature of the need for the life insurance policy; often 30 or 40 years, or more.

 

This is especially important because a policy may lapse prematurely (that is, it may expire too early!) with the given assumptions. This is especially true with Universal Life illustrations. At first, the plan may seem attractive and affordable, but may actually prove to be costly in the later years in order to keep the policy in force. We will discuss this issue in more detail further ahead.

 

Life expectancy

 

A non-smoker, 40-year old male is expected to live approximately an additional 40 years, that is to 80 years of age. This is based on the 1986-1992 Canadian Institute of Actuaries mortality table. For a couple purchasing insurance at age 60 with a death benefit payable upon the death of the second spouse, life expectancy (the number of years until the last of the two insureds is expected to die) is about 30 additional years.

 

Although life expectancy numbers can give you an indication of the length of time before a death benefit is payable, life expectancy is only an average, not a prediction, and the actual results for a specific individual could be many years more or less than the life expectancy shown in mortality tables. Therefore, it's important to consider reasonable assumptions over a sufficiently long period of time.

 

Of course, the value of money significantly changes with the more time that passes. To learn more how this can impact the illustration proceed to the next page.

 

Next page >

 

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

 

 

 

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

 

What is the purpose of life insurance illustrations?

 

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.

 

Return to life insurance education center