How to Find Misleading Information In a Life Insurance Policy

With some help from the National Association of Insurance Commissioners (NAIC), policy illustrations have been changing with the intent to better assist consumers by providing guidelines for life insurance advisers and companies.

Prior to the new regulations by the NAIC, there was a series of poor communications between insurance companies to agents and agents to consumers. Also, agents were allowed to provide their own “custom” illustrations, which were misleading to consumers.

When the NAIC adopted the model regulation, it was up to each State Department of Insurance whether or not to adopt it. Up until this time, there was no oversight for ensuring that the presentation of illustrations was fair and appropriate.

Various states have adopted this regulation with certain state-by-state modifications.

The Model Regulation’s stated purpose is to provide rules for life insurance policy illustrations, which will protect consumers and foster consumer education. The goals are to “ensure that illustrations do not mislead purchasers of life insurance and to make illustrations more understandable.”

This regulation created standardized procedures, which must be followed during the sales of all “life insurance policies except variable life insurance, individual and group annuity contracts, credit life insurance, and life insurance with no illustrated death benefit on any individual exceeding $10,000.”

It also sets forth, in conjunctions with the Actuarial Standards Practice Number 24, rules for acceptable assumptions that underlie an illustration.

According to this regulation, an illustration is any presentation or depiction that includes non-guaranteed elements of a policy of life insurance over a period of years.

In other words, if it assumes an interest rate higher than the guaranteed rate and projects accumulated values based on the higher rate, it contains “non-guaranteed elements”, which is, therefore, an illustration subject to the Model Regulation.

Basic Illustration

A ledger or proposal used in the sale of a life insurance policy that shows both guaranteed and non-guaranteed elements. It must always accompany or precede any Supplemental Illustration.

· Narrative Summary – Describes any policy features, riders, or options and the impact they have on the policy. Also, defines the column heading and key terms used in the illustration.

· Numeric Summary – Summarizes death benefit, values, and premiums for three or four particular policy years. Also, includes signed statements by both the applicant and agent.

· Tabular Detail – Shows death benefits, values, and premiums for all policy years until age 100, policy maturity, or final expiration.

Revised Basic Illustration

An updated version of the Basic illustration, which illustrates the policy as issued.

Supplemental Illustration

An illustration that presents and depicts the same information found in a basic illustration, but in a different format. The illustration gives the company more flexibility in explaining to the applicant or prospective applicant as to how the product works.

Tony Steuer is an author and advocate for financial preparedness. Tony Steuer, CLU, LA, CPFFE, helps people make sense of the financial world in a way that’s easy for them to understand. His books including, “GET READY!,” “Insurance Made Easy,” and “Questions and Answers on Life Insurance,” have won numerous awards. Tony is the founder of the GET READY! Initiative which includes the GET READY! financial organization system, the GET READY! Financial Preparedness Club, GET READY! Podcast, and the GET READY! Financial Principles, a best practices playbook for the financial services industry. Tony served as long-term member of the California Department of Insurance Curriculum Board. Tony is regularly featured in the media including the New York Times, the Washington Post, Fast Company, and other media. He has also appeared as a guest on television shows, such as ABC’s “Seven on Your Side.” Visit to join the GET READY! Financial Preparedness Club and access free resources.

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