Understanding Life Insurance Illustrations
Many people feel that trying to get an understanding of Life Insurance Illustrations and taking a crash course in the Greek Language are on about the same difficulty schedule. Although they are somewhat daunting, Life Insurance Illustrations are not quite Greek when you understand a few simple facts about them.
The Life Insurance Illustration for a simple Term Life Insurance Policy may appear to be complex enough. It can often run several pages and contain quite a few numbers. Yet compared to the Illustration pages for a Variable Universal Life Policy, the simple Term Illustration will seem like a first grade arithmetic page. When you understand a few basic facts about them, however, it is a bit less complicated.
First, the Life Insurance Illustration is going to be presenting you two completely different scenarios about the performance expectancy of your policy. The first is called the guaranteed performance and the second is the non-guaranteed performance. As one wag put it, the only thing that is really guaranteed is that the actual performance of your policy will correspond to neither of the projections in the Illustration.
The guaranteed portion is based on what the Insurance Industry considers the worst case scenario. It is about the worse that you can expect. This is why they call it the guaranteed. Your policies actual performance is going to be better. Why should you expect that? Well, mainly because the Insurance Industry is a highly competitive business and they work hard to maintain their reputation. In other words, they are going to do better than the worst case scenario even if times get hard and their investment choices are not the best.
Likewise, the non-guaranteed figures are going to represent a reasonable guess as to the future performance of factors that can not usually even be reasonably guessed at. The Insurance Companies do not employ fortune tellers and all they can do is try to anticipate the impact of a lot of different factors and how they will play out in the future. It would seem from this that the Life Insurance Illustration does not really serve any purpose at all. This is not the case at all.
The true value of the Illustration lies not in the accuracy of its projected numbers but rather in helping to understand the basic principles that will guide your policys performance. There are four factors that create movement in the value of a policy. Premiums and earnings cause an increase in cash value. Mortality charges and expenses decrease the value. The Life Insurance Illustration will show how these four moving factors impact your policy during its life. Do not be daunted by the complexity of the Illustrations or by the seemingly endless columns of numbers. The Life Insurance Illustration is not a flashy sales tool, but a valuable source of understanding and knowledge. It can be understood with a bit of guidance and can help make the selection and comparison process more accurate and beneficial.
Barry Waxler is a financial advisor at UFCAmerica.com.
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