Policy illustrations are the insurance company's projections for a policy's performance in future years. Typically these are not guaranteed and often exaggerate the financial success of an investment. However, if you understand the fallibility of these projections, you can use them to your advantage.
Explains whole life insurance policy illustrations.
Advises you on how to make biased projections useful.
Quickly describes the difference between term life rate projections and whole life illustrations.
Premiums can vary by as much as 50% for the same coverage and options, so it pays to get quotes from as many reputable insurers as possible.
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Companies (and their agents) selling all varieties of whole life insurance will present you with policy illustrations meant to put each policy's future performance prospects in the best possible light.
That is okay, that is their job.
But, you should know that life insurance illustrations are just a way to spin numbers in a way that makes a policy seem appealing, without any ability to tell the actual future (like a savings account, or government bond might do).
Keeping in mind that all attempts at foretelling the future are fundamentally futile, you can still use the information that your agent or company representative gives you to gain a good overall picture of a particular policy's probable future performance.
Instead of comparing the hundreds of figures contained in the illustrations you're provided with, we suggest you request two specific illustrations from each prospective insurance company.
Ask for an insurance illustration using the current interest rate throughout the entire life of the policy, and another using an interest rate 2% lower than the current rates. Often, the projections illustrated with these two figures are very revealing.
First, compare the two illustrations provided by each company. If the projections vastly differ with the two percent decrease in interest rates, you should be wary. This is often an indicator that the company is unreliable and your investment in them may not pay off as much as you think it will.
The less the two insurance illustrations vary the more conservative the company is and the more likely their predictions will be accurate.
After weeding out a few prospective companies using that comparison, compare the insurance illustrations of the remaining companies to each other. Again, the most conservative projections are most likely more reliable.
Illustrations are fine, but independent ratings are be better. When you get your life quotes from one of our partner carriers, you'll also receive the basic AM Best ratings for each company which offers you a competitive quote. This way you'll be able to easily see what an independent, credible third party thinks of the company's financial standing.
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Term life insurance illustrations and permanent life insurance illustrations differ in content so it is difficult to really assess which company is better if you are comparing two different policy types.
Term insurance illustrations display the maximum premiums for each year, the total premiums paid for that year and each year's death benefits. These figures are pretty concrete, while permanent life insurance relies heavily on economic trends.
Instead of blindly comparing figures between these two types of policies, find out how many months the insurance company guarantees their insurance rates. Normally rates are guaranteed anywhere from 3 to 12 months - the longer a company offers a guarantee the better. An insurance company offering no guaranteed insurance rates should make you raise an eyebrow and question its financial stability.