Policy Illustrations Flashcards
What are the four moving parts whole life insurance?
Cash Inflows - Premiums and interest credits
Cash Outflows - Mortality (insurance) charges and expenses
What are three variables of a LI illustration?
Premium
Cash value
Death benefit
What two components are part of all LI illustrations? What is the difference between the two?
Guaranteed and Current:
Both use the same underwriting assumptions regarding the insured’s age, health, and other underwriting factors (Note - These assumptions should be reviewed as part of the insurance illustration review process):
Guaranteed - Assumes the lowest interest credits and the highest possible mortality charges. It is a “worst case scenario,” and therefore is unlikely.
Current (non-guaranteed) - Assumes current interest rates and mortality charges continue indefinitely into the future.
In reality, it is virtually certain that neither the guaranteed or non-guaranteed scenarios will come to pass. Note that the assumptions related to mortality charges and interest rates in the current/non-guaranteed scenario are only guaranteed for the year in which the illustration is generated (usually the year the policy is sold)
T or F - A policy outcome should never be worse than the guaranteed scenario in an illustration
True - Because the guaranteed illustration assumes the lowest interest rate and highest mortality charges allowed by the policy. Of course, this assumes the life insurance company doesn’t fail.
What are the first two steps involved in evaluating a LI illustration?
- ) Check the rating the life insurance company
2. ) Review the assumptions used in the policy regarding the insured (age, health, etc)
True or False - Actual insurance policy performance depends on factors under the discretionary control of the insurance company.
True - The assumptions shown in the non-guaranteed/current illustration are certain to hold for only one year (generally the year of issue). After that, they under the control of the insurance company.
