What is a life insurance illustration?

A life insurance illustration is a document that projects how a permanent life insurance policy may perform over time. It shows year-by-year estimates of premiums, cash value growth, death benefit, and other values based on certain assumptions. Illustrations are useful planning tools, but they are not guarantees—and understanding the difference between guaranteed and non-guaranteed columns is essential.

What an illustration shows

A typical illustration includes columns for each policy year, showing:

• Annual premium: What you pay each year.
• Guaranteed cash value: The minimum cash value the policy will have, based on the worst-case guaranteed interest rate and maximum charges.
• Non-guaranteed (illustrated) cash value: A projection based on the insurer's current interest rate or assumed rate of return. This is the optimistic scenario.
• Guaranteed death benefit: The minimum death benefit assuming guaranteed values.
• Non-guaranteed death benefit: The projected death benefit based on current or assumed rates.
• Surrender value: What you would receive if you canceled the policy in a given year, after surrender charges.

Guaranteed vs. non-guaranteed values

This is the most important distinction in any illustration. The guaranteed column shows what the insurer is contractually obligated to deliver. The non-guaranteed column shows what might happen if current assumptions hold—but those assumptions can change. Interest rates can drop, policy charges can increase, and real-world performance can fall well short of the illustrated scenario.

Common pitfalls

• Focusing only on the non-guaranteed column: Sales presentations often highlight the optimistic projection. Always look at the guaranteed column to see the floor.
• Assuming illustrated rates will continue: Interest rates and market returns fluctuate. An illustration based on a 6-percent return may underperform in a lower-rate environment.
• Ignoring surrender charges: Early-year surrender values can be significantly less than the cash value due to surrender charges that can last 10 to 15 years.
• Not requesting updated illustrations: Ask for a new illustration every few years to see how actual performance compares to the original projection.

What Truscott recommends

Never buy a permanent life insurance policy without reviewing the illustration carefully—and never rely solely on the non-guaranteed numbers. A Truscott coverage review will walk you through the illustration line by line, compare guaranteed and non-guaranteed scenarios, and help you understand what you are actually buying. Contact us before you commit to any permanent life policy.