What Is a Policy or Sales Illustration?

A policy or sales illustration is an educational tool that shows a prospective or new insurance policyholder how a life or disability insurance policy works. A policy or sales illustration takes into account all the key details of a policy, including the age, gender and underwriting category of the applicant or insured (the level of risk used to determine premiums) .

Break down sales policy or illustration

A policy or sales illustration also indicates the name of the insurance product, its duration, the amount of the benefit, primecash values ​​(if the policy has a cash value component) and projections dividends (if the contract is issued by a mutual). The illustration will also outline any policy endorsements or options. A policy illustration shows how the value of the policy is expected to change over time and what assumptions those values ​​are based on. A disability policy illustration will also show the waiting period before benefits become payable and outline the conditions that must be met for the policy to pay out.

A policy or sales illustration is not a binding contract and does not guarantee the value of a policy in any given year, except where values ​​are explicitly stated as “guaranteed”. The illustration is largely an educated guess determined by a computer program based on information available at the time the illustration is generated. The actual legal warranties associated with the policy are contained in the policy contract.

Insurance agents provide policy illustration to applicants who are considering purchasing a life or disability insurance policy. The illustration shows the features and benefits of the policy. Once the policy is issued, the agent will issue a new illustration based on the actual policy issued, as it may contain different assumptions than the illustration used in the application phase. For example, the applicant’s medical examination may have placed the customer in a higher risk category than the assumed initial sales illustration, or the applicant may have changed their mind about the amount of coverage they wish to purchase. .

The National Association of Insurance Commissioners (NAIC) has developed a model policy illustration that many insurers use as the basis for their policy or sales illustrations because it is easy to understand and contains all the information consumers need.It shows the current guaranteed and unguaranteed values ​​of the product based on how the policy’s underlying sub-accounts affect the policy’s cash value and death benefit, assuming a reasonable rate of return, taking into account the client’s risk tolerance and market conditions. The policy illustration must also show any fees associated with the policy. Sales or policy illustrations are used with products such as whole life insurance, universal life insurance, variable universal life insurance, and long term disability insurance.

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