A universal life insurance policy can remain in force for decades, but that does not necessarily mean it is performing the way it was originally illustrated.
Crediting rates, policy charges, premium payments, withdrawals, loans, and other policy activity can all affect how an existing policy performs over time. For this reason, evaluating a universal life insurance policy generally requires more than reviewing the original illustration or the most recent annual statement.
One of the most useful tools is a life insurance in-force illustration. An in-force illustration uses information from an existing policy to project how the coverage may perform under specified assumptions going forward.
But interpreting an in-force illustration is not always straightforward. The assumptions being illustrated can materially affect the results, and in some situations the information available from the insurance carrier may not answer every question a policy owner is trying to evaluate.
What Is a Life Insurance In-Force Illustration?
An in-force illustration is a projection of how an existing life insurance policy may perform in the future based on the policy's current values and a specified set of assumptions.
Unlike the original sales illustration, which was prepared before the policy was issued, an in-force illustration starts with the policy as it exists today. Depending on the policy and illustration, that may reflect current policy values, death benefit, current and future premium assumptions, policy charges, loans or withdrawals, and other policy activity that has affected the coverage since issue.
The illustration then projects what may happen in future years if certain assumptions continue.
For a universal life insurance policy, an in-force illustration may help answer questions such as:
- How long is the current death benefit projected to remain in force?
- Are current premium payments sufficient to support the coverage?
- How could different crediting or policy-charge assumptions affect future performance?
- Would additional premium funding improve the policy's projected longevity?
- Could the death benefit or funding strategy be adjusted?
These projections can be extremely useful, but they should not be confused with guarantees. The results depend on the assumptions used in the illustration and the contractual guarantees of the policy.
Guaranteed and Non-Guaranteed In-Force Illustrations
One of the most important distinctions when reviewing an in-force illustration is the difference between guaranteed and non-guaranteed policy assumptions.
Guaranteed Policy Assumptions
A guaranteed illustration generally reflects the contractual guarantees of the policy. Depending on the policy, this may include the minimum guaranteed interest-crediting rate and the maximum policy charges permitted under the contract.
These assumptions can produce results that are significantly less favorable than an illustration using current non-guaranteed assumptions. That does not necessarily mean those results are expected to occur. Instead, the guaranteed values illustrate policy performance based on the guarantees contained in the contract, subject to the assumptions and requirements shown in the illustration.
Non-Guaranteed Policy Assumptions
A non-guaranteed illustration may use current or other permitted assumptions for elements that are not contractually guaranteed. Depending on the policy, these may include current interest-crediting rates and current policy charges.
Because these elements can change, the resulting values are projections rather than promises of future policy performance.
This distinction becomes particularly important with current-assumption universal life insurance. A policy may have been designed and funded using non-guaranteed assumptions that were substantially different from the contractual guarantees. Comparing different illustration scenarios can therefore provide a much more complete picture than looking at a single projection.
Why Reviewing More Than One In-Force Illustration Can Matter
A single in-force illustration may not provide enough information to fully evaluate an existing universal life insurance policy.
For example, a guaranteed illustration can show how the policy performs under the contractual guarantees, while an illustration using current non-guaranteed assumptions may provide another perspective on how the policy is projected to perform if those assumptions continue.
Depending on the policy and the information available from the insurance carrier, additional scenarios may also be useful. These could include illustrations showing different premium amounts, changes to the death benefit, or alternative assumptions permitted by the carrier.
The objective is not to identify which illustration will prove to be correct. Future non-guaranteed policy performance cannot be known in advance. Instead, comparing multiple scenarios can help a policy owner understand how sensitive the policy may be to changes in its underlying assumptions.
Questions Different Illustration Scenarios Can Help Answer
When reviewing an existing universal life insurance policy, different in-force illustrations may help answer questions such as:
- What does the policy contractually guarantee based on the illustrated funding?
- How is the policy projected to perform under the current assumptions shown by the carrier?
- How sensitive is the projected policy duration to changes in non-guaranteed assumptions?
- Would additional premium funding materially improve projected policy longevity?
- Could reducing the death benefit improve the sustainability of the coverage?
- Are there policy loans, withdrawals, or other transactions affecting the results?
Looking at these scenarios together can provide a more useful picture of the policy than relying on a single illustration.
What If the Carrier Provides Only Limited Illustration Scenarios?
Sometimes a policy owner or advisor may request an in-force illustration and find that the available illustration does not provide all of the scenarios they would like to evaluate.
This can be particularly challenging with an older current-assumption universal life insurance policy that was originally designed using non-guaranteed assumptions. If the available illustration reflects only the contractual guarantees, the policy owner can see what the contract guarantees under the illustrated conditions, but may have less information for evaluating other potential outcomes.
That does not make the guaranteed illustration inaccurate or imply that the carrier is doing anything improper. It simply means the illustration should be understood for what it shows—and what it does not show.
In that situation, a policy review may require additional analysis using the policy's annual statements, current values, premium history, contractual provisions, available carrier information, and any additional illustration scenarios the carrier is able to provide.
Case Study: Evaluating an Older Universal Life Insurance Policy
The following case study illustrates why the assumptions available in an in-force illustration can matter when evaluating an older universal life insurance policy. Client and carrier identifying information has been removed.
The policy was purchased approximately 20 years earlier, when the insured was age 74. It was owned by an irrevocable life insurance trust (ILIT) and was intended to provide life insurance proceeds for estate planning purposes.
When the policy was issued, an annual premium of $32,312 was projected to support the coverage to age 113 under the non-guaranteed assumptions illustrated at the time. The original illustration used a 6.25% interest-crediting assumption.
Over the following two decades, the policy's credited interest rate declined. At the time of the review, the credited rate had reached the policy's 4.00% guaranteed minimum.
That change was important. The policy had originally been funded based on non-guaranteed assumptions, and the original projection no longer reflected the assumptions applicable at the time of the review.
What the Available In-Force Illustration Showed
When an updated in-force illustration was requested, the carrier provided a projection using guaranteed assumptions. Under those assumptions, continuing the $32,312 annual premium resulted in the policy being projected to lapse at the end of policy year 20.
At the same time, the illustration showed approximately $676,878 of accumulation value in the policy.
This created an important analytical problem. The guaranteed illustration provided useful information about the contractual guarantees, but it did not provide a projection using the policy's then-current non-guaranteed assumptions.
As a result, the guaranteed illustration alone could not answer one of the most important planning questions: how was the policy projected to perform based on the current policy values, current funding, and the non-guaranteed assumptions then applicable to the policy?
What Can a Policy Owner Do When Illustration Options Are Limited?
When an insurance carrier does not provide every illustration scenario a policy owner or advisor would like to evaluate, the objective is to work with the information that is available without treating any single projection as a prediction of future policy performance.
The appropriate analysis will depend on the policy, but several steps may help provide a clearer picture.
Review the Current Policy Values and Annual Statement
Start with the policy's current death benefit, accumulation or account value, cash surrender value, premium history, loans or withdrawals, and other information available on the most recent annual statement.
This establishes where the policy stands today before considering what may happen in the future.
Understand What the In-Force Illustration Actually Assumes
An in-force illustration should be evaluated based on the assumptions it uses. If the illustration reflects guaranteed assumptions, those results should not automatically be interpreted as the expected outcome of the policy.
Likewise, a non-guaranteed illustration should not be treated as a promise that the illustrated values or policy duration will occur.
Request Additional Scenarios When Available
Depending on the carrier and policy, it may be possible to request additional illustrations using different premium amounts, death benefits, or other permitted assumptions.
These scenarios can help determine how changes to the policy or funding strategy could affect projected policy longevity.
Evaluate the Policy Against the Owner's Current Objectives
Policy performance should ultimately be evaluated in the context of why the coverage is still needed.
For example, a policy owned by an ILIT for estate planning purposes may have a very different objective from a policy designed primarily for cash accumulation. The appropriate funding strategy therefore depends on the purpose of the coverage, the insured's circumstances, and the policy owner's objectives.
Why In-Force Illustrations Are an Important Part of a Policy Review
An in-force illustration is not a prediction of exactly what will happen to a life insurance policy. It is a tool for evaluating how an existing policy may perform under a specified set of assumptions.
That distinction is important. A policy can look substantially different depending on whether the illustration uses contractual guarantees, current non-guaranteed assumptions, or another permitted scenario.
A comprehensive life insurance policy review considers those projections alongside the policy's actual values, funding history, contractual provisions, and the policy owner's current objectives.
When the available illustration scenarios are limited, the analysis may require additional care. The goal is not to predict future policy performance with certainty, but to understand the information that is available, identify potential risks, and determine whether changes to the policy or funding strategy should be evaluated.
Reviewing an Existing Universal Life Insurance Policy
Universal life insurance can remain in force for decades, and the assumptions affecting policy performance can change substantially during that time. An illustration prepared when the policy was originally purchased may therefore provide limited insight into how the policy is positioned today.
Obtaining current policy information and appropriate in-force illustrations can help identify potential issues before they become more difficult or expensive to address.
For policy owners who want a more comprehensive evaluation, our Life Insurance Policy Review process is designed to evaluate existing coverage, current policy performance, and available options in the context of the owner's planning objectives.
This material is provided for informational purposes only. Life insurance policy values, guarantees, charges, and non-guaranteed elements vary by policy and insurance company. In-force illustrations are based on specified assumptions and are not predictions or guarantees of future non-guaranteed policy performance.
