An illustration is a state-regulated, year-by-year projection of an indexed universal life (IUL) policy's premiums, charges, death benefit, and cash value, shown under both guaranteed contractual assumptions and a non-guaranteed, capped illustrated rate.
What the regulation requires
The NAIC's Life Insurance Illustrations Model Regulation, which most states have adopted in some form, sets the rules for how an illustration must be built and presented. A basic illustration must show guaranteed death benefits and values, clearly labeled, before the corresponding non-guaranteed values, and any page that shows only non-guaranteed values must point to where the guaranteed ones are. It also requires a numeric summary at policy years 5, 10 and 20 and at age 70 on three bases: the guarantees, the illustrated scale, and a midpoint with credited interest and charges set halfway between the two.
The two columns, side by side
Every basic IUL illustration runs the same policy design through two sets of assumptions. The guaranteed column uses the contract's maximum allowed charges and its guaranteed minimum crediting (usually 0% on the index side), the worst outcome the contract allows for that policy design. The non-guaranteed column uses current charges, which the insurer can change within contractual limits, and an assumed index crediting rate capped under Actuarial Guideline 49-A. Both columns are run off the same premium schedule and the same policy features, so the gap between them shows how much of the projection depends on assumptions that are not locked in.
What changes after the sale
Once a policy is in force, an owner or their strategist can request an updated projection called an in-force illustration, which reruns the same guaranteed and non-guaranteed format using the policy's actual current cash value, current charges, and current cap and participation rates rather than the assumptions used at issue. This is the standard way to check whether a policy is still tracking toward its original non-guaranteed projection or has drifted because of lower-than-assumed index credits, higher-than-assumed charges, or unplanned withdrawals and loans.
What an illustration is not
An illustration is a hypothetical projection built from a specific set of assumptions on the date it was run, not a guarantee that a policy's cash value will reach any number shown in its non-guaranteed column. Actual results depend on real index performance, real charges over time, and how the policy is actually funded, all of which can differ from what the illustration assumed.
In short: an illustration shows what a policy could do under two sets of assumptions, one guaranteed by contract and one that is not. Reading only the non-guaranteed column, and treating its numbers as a forecast rather than a hypothetical, is the single most common mistake buyers make with this document.
Frequently asked questions
What is an IUL illustration?
It is a formal projection, required by state insurance regulation, showing how a specific policy's cash value and death benefit could develop over time under stated assumptions. It is generated at the point of sale and can be re-run later as an in-force illustration.
Is anything in an IUL illustration guaranteed?
Only the guaranteed column. It reflects the contract's maximum charges and its guaranteed minimum crediting (usually a 0% index credit), the worst outcome the contract allows. The non-guaranteed column uses current charges and an assumed rate capped by Actuarial Guideline 49-A, and neither current charges nor that assumed rate are locked in for the life of the policy.
Why can two illustrations for the same policy look different a year apart?
Because the non-guaranteed assumptions, current cost of insurance rates, and the illustrated interest rate itself can all change as the carrier changes its current caps and charges, and the rules on illustrated rates themselves have been revised, even though the underlying contract has not been modified.
Written and reviewed by
James Forren Warren
Licensed Retirement Income Strategist · License #20551202
James Forren Warren is a licensed Retirement Income Strategist with Tax Free Wealth Plan. For the past five years he has helped individuals and families turn their savings into retirement income they can count on. He writes and reviews the annuity research on this site and keeps it plain: what a product does, what it costs you, and who it actually fits.
Sources
Educational only, not investment, tax or legal advice. Tax Free Wealth Plan LLC is a licensed insurance agency, not a registered investment adviser or broker-dealer. Indexed universal life is permanent life insurance. It is not an investment in the stock market or in any index. Caps, participation rates, charges and other non-guaranteed elements can change. Policy loans and withdrawals reduce the cash value and death benefit, and a policy that lapses with a loan outstanding can create taxable income. Illustrations are hypothetical and not guaranteed. Coverage is subject to underwriting. Guarantees are backed solely by the claims-paying ability of the issuing insurance company. Features, costs and availability vary by state and change over time; the policy and its disclosure documents govern.