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What is a policy illustration and
what does it show?
First, it's important to keep in mind
that not all insurance policies have illustrations.
An illustration shows policy premiums,
death benefits, cash values and information about other
items that can affect the cost of obtaining insurance.
Your policy may provide for dividends to be paid to
you as either cash or paid-up insurance.
Or it could provide for interest credits
that could increase your cash value and death benefit
or reduce your premium. These items are not guaranteed.
Your costs or benefits could be higher or lower than
those illustrated, because they depend on the future
interest rates or cost of insurance charges. With variable
life, your values will depend on the results of the
underlying portfolio of investments.
Ask your agent for an explanation
of the policy illustration; some figures are guaranteed
and some are not. Remember that the insurance company
will honor the guaranteed figures regardless of its
future financial experience.
If your policy is a variable life
policy, be sure that the interest rate assumed is reasonable
for the underlying investment accounts to which you
choose to allocate your premiums. For example, some
investment advisors suggest that a higher interest rate
assumption may be warranted if you plan to allocate
your premium to a stock account, while a lower rate
should be assumed for more conservative alternatives.
It is important to keep in mind that
an illustration is not a legal contract. Legal obligations
are spelled out in the policy itself.
Here are additional questions to
ask about the policy illustration.
* Is the illustration up to date?
Is it based on current information?
* Is the classification shown in the illustration appropriate
for me (i.e., smoker/ non-smoker, male/ female)?
* When are premiums due -- annually, monthly or otherwise?
* Which figures are guaranteed and which are not?
* Will I be notified if the non-guaranteed amounts change?
* Does the policy have a guaranteed death benefit, or
could the death benefit change depending on interest
rates or other factors?
* Does the policy pay dividends or provide for interest
credits? Are those figures incorporated in the illustration?
* Will my premiums always be the same? Is it possible
that the premium will increase significantly if future
interest rates are lower than the illustration assumes?
* If the illustration shows that, after a certain period
of time, I will not have to make premium payments, is
there a chance I would have to begin making payments
again in the future?
* Is the premium level illustrated sufficient to guarantee
protection for my entire life?
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