The Importance of Inforce Policy Illustrations
According to LIMRA, more than 60% of U.S. life insurance policy owners don’t fully understand what policies they hold, why they were originally purchased, or how they are currently performing. When it comes to life insurance holdings, the unknown can be risky and underperforming policies may be in danger of future lapse.
If your client owns a permanent policy that has not been reviewed within the past three years, it may be time to request an inforce policy illustration. It is now more important than ever to run these inforce illustrations every few years, as we increasingly find that customers are being told their existing products are no longer illustratable. As a result, these clients may be limited to illustrations based only on guaranteed rates and deductions.
Why is it Important to Request an Inforce Illustration?
The illustration prepared at the time of policy purchase will include the then-current assumed interest/crediting rates, charges, and expenses. It is important to remember that illustrations are just projections, and that rates and expenses can change over time. As a result, the actual policy experience may differ from the original sales illustration.
An inforce illustration can account for these rates and expenses and then project the policy cash values into the future based on the new current values. If inforce illustrations are run routinely every few years, your client will be better positioned to fully understand their policy performance and you will both be better equipped to determine whether corrective changes should be made.
How to Request an Inforce Illustration
The policy owner will need to contact the insurance company to request this illustration. It is important to note that only the owner of the policy or the agent of record can request an inforce illustration. If the request is for a flexible premium policy (universal life, variable universal life, or indexed universal life policy), the request might take one of the following forms:
- Seeking an inforce illustration based on current assumptions. This request will result in an illustration with current premiums projected forward using the current rates and expenses.
- Seeking an inforce illustration based on current assumed rates to carry the policy to age 100. With this request, the carrier will recalculate the premium to have $1 in the policy at age 100.
- Seeking an inforce illustration based on guaranteed assumptions to age 100. With this inforce illustration, the carrier will recalculate the premium assuming it credits the lowest rate and the highest expenses.
Once the illustration is received, it will be up to you as the trusted advisor to help the client understand the data and details of the illustration. This is also a prime opportunity to initiate the performance evaluation process.
How DBS Can Help
The DBS Case Design and Inforce Support & Services teams can help you effectively steward your clients’ inforce business, including developing inforce illustration requests and conducting performance evaluations, and to learn more about DBS policy review services and our team of inforce specialists, contact your dedicated Case Design Analyst.