What Is an Inforce Illustration and Why Is It Important?

An inforce illustration is a detailed report from a life insurance company that outlines the current status and future projections of an existing life insurance policy. This personalized document estimates how the policy’s cash value balance is expected to change over time. It reflects the policy’s performance since its inception, taking into account historical data and current assumptions, allowing policyholders to gain a comprehensive snapshot of their policy’s financial trajectory.

Purpose of an Inforce Illustration

Policyholders often request an inforce illustration to understand their life insurance policy’s ongoing health and performance. This tool helps track how the policy has performed against initial expectations, providing a current view of its cash value growth and the stability of its death benefit.

The illustration aids in reviewing the current policy status, including premium payments made to date and any outstanding loans. It helps policyholders understand the impact of various factors, such as changing interest rates or market conditions, on their policy’s long-term viability. By providing projected future values based on current assumptions, the inforce illustration supports informed financial planning and potential policy adjustments. This review can reveal if a policy is performing as anticipated or if adjustments may be necessary to maintain its intended benefits.

Key Components of an Inforce Illustration

An inforce illustration comprises several elements, each providing specific information about the life insurance policy. It begins with essential policy details, such as the policy number, its issue date, the insured’s age, and the specific type of policy.

Current values are a prominent feature, showing the policy’s accumulated cash value and the current death benefit. Information regarding premiums is also included, detailing both scheduled premium payments and the total premiums paid to date.

The illustration provides projected values, showing future cash values and death benefits under different scenarios. These projections include both guaranteed rates, representing a worst-case scenario, and non-guaranteed rates, which reflect current company experience and market conditions. Any outstanding policy loans or past withdrawals are also detailed, as these can significantly impact a policy’s future performance. Information on any attached riders, which are additional features, is also typically present.

Finally, the illustration outlines the assumptions used for its projections, such as credited interest rates, mortality charges, and expense charges. These assumptions are based on the insurer’s current experience and can vary over time, influencing the non-guaranteed projections.

Interpreting Your Inforce Illustration

Understanding your inforce illustration involves comparing the policy’s actual performance against its original projections. Reviewing the initial illustration provided at policy purchase alongside the new inforce illustration can highlight any deviations. This comparison helps identify if the policy’s cash value growth or death benefit stability differs from what was initially expected.

Understanding non-guaranteed elements, which include interest rates, dividends, mortality costs, and expense charges, is important. These elements are subject to change by the insurer and can cause actual policy performance to vary from illustrated values. For instance, a decrease in credited interest rates or an increase in mortality or expense charges can reduce the policy’s cash value accumulation or require higher premiums to maintain coverage.

Policy loans and withdrawals also have a direct impact on the policy’s long-term health. Taking a loan against the cash value, while providing liquidity, can reduce the death benefit if not repaid, and accrued interest on the loan can deplete the cash value over time, potentially causing the policy to lapse. Withdrawals permanently reduce both the cash value and the death benefit. Assessing premium adequacy is another key step, determining if current premium payments are sufficient to sustain the policy based on the new projections. If projections indicate the policy may not last as long as intended, adjustments to premiums or coverage may be necessary. Seeking guidance from a financial advisor or insurance professional can provide valuable insights and help ensure your policy aligns with your financial objectives.