An illustration is the document that shows how a plan is expected to behave over the years. It is full of numbers, usually arranged to tell a story. Learning to read it calmly is one of the most valuable financial skills you can build.
First: what kind of numbers are these?
Every figure falls into one of three categories:
- Guaranteed: the contract commits to it.
- Projected: based on assumed rates of return or dividends. Possible, not promised.
- Illustrative: an example at a particular scenario.
Find the label on each column. If you can’t tell which category a number belongs to, ask.
The columns that matter most
1. Total premiums paid, cumulative. What you’ve put in by each year.
2. Surrender or cash value, guaranteed. What you’d receive if you stopped, using only the committed figures.
3. Surrender or cash value, projected. The same, under the assumed scenario.
4. Death benefit, and whether it changes over time.
5. Charges and deductions, where shown.
Compare columns 1 and 2 in the early years. Many plans show a gap, and that gap is the cost of leaving early.
Questions to ask
- What rate of return is assumed? What happens at a lower one?
- Which figures drop if returns are poor?
- What are the charges, and do they change with age?
- What happens if I miss payments?
- What happens to the protection if the fund underperforms?
Warning signs
- Only the highest scenario is shown.
- The conversation avoids the guaranteed columns.
- Time pressure to sign.
- Vague answers on charges.
Practice
Take any illustration you own. Circle where the guaranteed value equals total premiums paid. That’s the break-even year. Is it earlier or later than you expected?
You don’t need to distrust the document. You need to understand what it can and can’t promise. For a deeper look at one common product category, see the truth about VUL.