An illustration is a projection, not a promise. Read it in this order: find the guaranteed columns and the year the policy lapses if only guarantees hold; find the assumed interest or index crediting rate behind the non-guaranteed columns and ask to see it at a lower rate; check how premiums are scheduled (and whether they stop); and look for policy loans or withdrawals that drive the "income" story. For indexed universal life, the illustrated rate is capped by the NAIC's Actuarial Guideline 49 rules, but real returns can still be lower.
We are licensed insurance brokers, not CPAs or attorneys. Treat the tax and legal points on this page as general education, and confirm them with your own CPA or attorney before acting.
On this page
What an illustration is
Permanent life insurance, especially universal life (UL), indexed universal life (IUL) and variable universal life (VUL), depends on future interest credits, index returns, charges and premium payments. An illustration shows how the policy might perform under stated assumptions, year by year. State regulations based on the NAIC Life Insurance Illustrations Model Regulation require illustrations to show guaranteed and non-guaranteed values and to label them clearly, and for policies sold with an illustration you will sign one.
The columns that matter
| Column | What it means | What to check |
|---|---|---|
| Premium outlay | What you plan to pay each year | Does it stop at some point? Is it realistic for your budget? |
| Guaranteed cash value and death benefit | Values using maximum charges and minimum crediting | The year either drops to zero is the guaranteed lapse year |
| Non-guaranteed (illustrated) values | Values using current charges and an assumed rate | What rate is assumed? Ask for a version 1 to 2 points lower |
| Loans or withdrawals | Money taken out, often shown as "retirement income" | How do values look if returns are lower and loans continue? |
| Surrender value | Cash value minus surrender charges | How long until surrender value equals premiums paid? |
Indexed universal life specifics
- Caps, participation rates and floors: credits are tied to an index, limited by a cap or participation rate, with a floor (often 0%) on losses. Carriers can change caps and participation rates on existing policies within contract limits.
- The illustrated rate: NAIC Actuarial Guideline 49, revised in 2020 (AG 49-A) and again in 2023, limits the maximum rate an IUL illustration can assume and restricts showing bonuses and multipliers more favorably than a basic indexed account. That keeps illustrations more uniform, but the assumed rate is still higher than many real-world sequences of returns produce.
- Charges: cost of insurance rises with age. A policy that looks fine at an illustrated 6% may run out of money in your 80s at 4.5%.
The loan story
Many permanent life sales emphasize tax-free income through policy loans. Loans can be a legitimate tool, but they reduce the death benefit and accumulate interest, and if the policy lapses with a large loan, the loan balance above your basis can become taxable income. Ask to see the loan scenario at a lower crediting rate, and ask what happens if you stop taking loans or the policy needs more premium in your 70s.
Questions to ask before you sign
- What year does the policy lapse on guaranteed assumptions?
- Show me the same illustration at a crediting rate 1 and 2 points lower.
- What premium keeps the policy in force to age 100 (or 121) on guaranteed or conservative assumptions?
- Is there a no-lapse guarantee, and what does it require?
- What are the surrender charges, and for how many years?
- How has this carrier treated in-force policyholders when it changed caps or charges?
If you already own a UL policy, see 7 signs a universal life policy could lapse.
Frequently asked questions
Are life insurance illustrations guaranteed?
Only the columns labeled guaranteed are. Non-guaranteed values depend on assumed interest or index credits and current charges, which can change.
What is a reasonable illustrated rate for IUL?
Carriers must stay within the maximum allowed by NAIC Actuarial Guideline 49 and its revisions, but you choose what to rely on. Many advisors ask to see illustrations at rates well below the maximum to stress-test the design.
What is an in-force illustration?
A new illustration on a policy you already own, using its current values and the carrier's current assumptions. It is the best way to check whether an existing permanent policy is on track.
Start your life insurance request
Tell us what the coverage is for and who it would cover. For most requests we ask for each person's date of birth and sex so Erik can prepare for the call. We do not ask health or tobacco questions in this initial request. This is a request for help, not an insurance application or a promise of coverage.
Written by Erik Moran
Erik co-owns Moran Insurance Group with Amanda Moran and handles the agency's life insurance cases, from key person and buy-sell coverage to trust-owned policies. He works alongside clients' CPAs and attorneys, who make the tax and legal calls. More about Erik.
Sources
Moran Insurance Group is a licensed insurance agency. Our brokers are not CPAs, attorneys or tax advisors, and nothing on this page is tax, legal or investment advice. Tax figures and rules reflect our understanding as of October 2026 and can change. Coverage is subject to carrier underwriting and state availability. Confirm anything tax or legal with a licensed CPA or attorney before you act on it.