Illustration Games: Immortality Rates!

Published on 09/12/2014

Life insurance companies know that consumers like you place tremendous value on life insurance illustrations when choosing a policy and when making decisions regarding inforce policies – way more value than you probably should in fact.

So it should come as no surprise that insurance companies will go to great lengths to prop up the illustrated values, as this leads directly to higher sales.

One recent case we analyzed revealed mortality rates within the illustration that were actually negative! Even after taking into account the premiums that were going into the policy, the cash values from one year to the next were illustrated to grow by more than the credited interest rate.

One explanation would be that this company strongly believes in reincarnation. Another explanation might be that they have hidden interest rate bonuses in the illustration that they have failed to disclose. Obviously, if these interest rate bonuses do not come to fruition – and in our experience they rarely do – then it is unlikely that the relative performance of the policy will be as attractive as its relative cosmetic appeal prior to issue.

There are lots of reasons why a policy may perform worse than what was originally illustrated, but when a company goes to these kinds of extremes to boost illustrated values (and sales), then the odds of you being a disappointed policyholder increase dramatically.

If you (or one of your advisors) can’t intelligently explain why the policy with the great illustration is going to outperform the policy with the lesser illustration, then there is a good chance that you are simply buying a paper promise – and that promise may not be worth any more than the paper it is printed on.