An inforce illustration is a detailed projection that shows the future performance of a life insurance policy based on current variables such as interest rates and costs. It helps policyholders understand how their policy’s cash value is expected to grow or deplete over time. Essentially, it’s an updated snapshot, providing a reality check on how the policy is performing against initial expectations.
Requesting an inforce illustration is crucial for several reasons:
- Financial Planning: It aids in financial planning by providing a clear picture of where your life insurance policy stands and whether it’s meeting your financial goals.
- Prevent Policy Lapse: It alerts you if your policy is at risk of lapsing due to insufficient cash value to cover the costs, allowing you to make necessary adjustments to your premium payments.
- Update on Performance: Since the performance of life insurance policies can be affected by fluctuating interest rates and changing costs, an inforce illustration can show you how these changes impact your policy.
- Decision-Making: It assists in making informed decisions about whether to continue, amend, or terminate the policy based on its projected future performance.
How It Works
An inforce illustration includes projections based on current premiums, current interest rates, and guaranteed minimum interest rates and maximum costs. Here’s what each projection entails:
- Current Premium Projection: Shows how the policy will perform if no changes are made to the premium amounts, based on current interest rates.
- Current Interest Rate Projection: Provides a scenario where premiums are adjusted to keep the policy in force until the policyholder’s 100th birthday, using the current interest rates.
- Guaranteed Projection: Uses the worst-case scenario with the lowest interest rates and highest costs to show the maximum premiums needed to sustain the policy.
Risks of Not Updating Your Policy
Not requesting an inforce illustration and failing to update your policy accordingly can lead to several risks:
- Policy Lapse: Without adequate cash value, your policy may lapse, leaving you without coverage.
- Financial Loss: You might continue paying into a policy that no longer serves your financial goals or offers the expected benefits.
- Unexpected Costs: You could face sudden increases in premiums to cover shortfalls in policy performance, which could strain your finances.
How to Request an Inforce Illustration
Requesting an inforce illustration is straightforward. Contact your insurance agent or the company directly and ask for an illustration that includes current assumptions, an illustration based on the current interest rate, and one based on the guaranteed rates. It’s advisable to do this every few years to ensure your policy remains aligned with your financial goals.
Understanding Your Inforce Illustration
Inforce illustrations can be complex documents filled with financial terminology and projections. It’s important to review them carefully, possibly with the assistance of a financial advisor, to fully understand how your policy is performing and what adjustments may be necessary to maintain its viability and alignment with your financial plans.
By keeping track of your life insurance policy through regular inforce illustrations, you can ensure that it continues to meet your needs and adjust your strategy accordingly to protect your financial future.
