If someone has purchased a cash value life insurance policy it is wise to request an inforce life insurance illustration at least every three years. The inforce illustration takes into account the current cash value and projects out what the policy will look like based on current assumed interest rates which could be significantly different from the original illustration from the beginning of the policy. Unfortunately, most people who have permanent cash value life insurance policies never request inforce life insurance illustrations and get upset down the road when the policy underperforms or lapses. It is prudent to work with an insurance agent who knows how to make the correct adjustments to the premium and death benefit in order to accomplish goals and changing needs.
Why Request an InForce Illustration
Over time the cash value and credited interest will be different with the inforce illustration than original illustration. The inforce illustration will take into account the interest rate that has been credited to the policy and illustrate out future values based on the new current illustrated rates. For example, if someone has purchased an Index Universal Life (IUL) and the cap rate has decreased, the new inforce illustration will reflect a lower interest rate than what was on the original illustration. The original illustration might have used a 8.3% assumed rate of return, but now with a lower cap it might reflect a 7.11% as the new assumed rate for the future. It is important to remember that illustrations are just projections and the inforce illustration will show how the policy has actually performed and ballpark how it will most likely perform in the future.
How To Request An InForce Illustration
If a policyowner has a cash value life insurance policy and would like to request an inforce illustration they need to contact their agent or the insurance company directly. It is important to note that the policyowner has to call, if a spouse tries calling to request and inforce illustration the customer service department will most likely not be able to help or give out any information since they are not the policyowner. This can be frustrating when one spouse calls into the insurance company to request inforce illustrations for them and their spouse and are only able to request one inforce illustration. Once the policyowner gets on the line with customer service it is prudent to request the inforce illustration three different ways and here is what to say:
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“Please generate an inforce illustration based on current assumptions” – meaning with the current scheduled premium
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“Please generate an inforce illustration based on current assumed interest rate to carry my policy until age 100” – basically asking the insurance company to recalculate the premium either to increase or decrease to have $1 in the policy at age 100 so the death benefit will be paid out
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“Please generate an inforce illustration based on guaranteed assumptions to age 100” – meaning if the world is falling apart and the insurance company credits the lowest guaranteed interest and raises the cost of insurance to the maximums, what is that premium?
Watch the Video to learn more about the InForce Illustration
How to Understand the InForce Illustration
Once the policyowner has the inforce illustration(s) it is important to understand the non-guaranteed and guaranteed elements to properly plan for the future. It is very unlikely the guaranteed elements would ever come into play because the insurance company would have to credit the lowest interest possible for the future and most importantly go to the guaranteed cost of insurance. From a life expectancy standpoint, it is unrealistic for an insurance company to increase cost of insurance because people are living longer, no shorter. The longer the insured lives, the insurance company has more time to pay out the death claim which favors the insurance company. Someone would be very hard pressed to find a life insurance company that has ever increased the cost of insurance from the initial policy date which is why it is a good idea to meet with a knowledgeable insurance agent who can help you analyze the facts and come up with the best action plan for the future.
Term Life Insurance
With term life insurance it is not possible to request an inforce illustration because there is nothing to illustrate out, a term life insurance policy is typically guaranteed for a period of time like twenty years. This means the premium and death benefit stay the same for the length of the term period and since the current scheduled premium and the guaranteed premiums are listed in the policy there is no reason for inforce illustrations. However, it is important to understand the convertibility options and what type of accelerated benefits are on the term policy. If someone were to convert their term policy to a whole life or universal life insurance contract, then they would be able to ask the company to generate an inforce illustration.
