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There is no single “right” number to pull off a life insurance illustration, because the document is built to show a range of outcomes under different assumptions — not one figure you’re promised. That is the first thing worth getting straight. This article is written for an adult who has been handed a dense, multi-page illustration and doesn’t know where to look first. If you have the document nearby, the most useful thing you can do before reading further is find the page with the columns of numbers, because that grid is where most of the confusion lives.
An illustration shows how a policy should perform under a specific set of assumptions the insurer spells out. According to the National Association of Insurance Commissioners, an illustration is a depiction provided to prospective or new policy owners showing how the policy should perform under the specific circumstances set out in it (NAIC). Read that carefully: should perform, under specific circumstances. Change the circumstances and the numbers change. The rest of this piece walks through what the columns mean, the three types of illustration you might be holding, and the ordinary ways a reasonable person misreads the page.
Contents
- What a Life Insurance Illustration Actually Is
- Three Types of Illustration You May Encounter
- Guaranteed vs. Non-guaranteed: The Distinction That Changes Everything
- The Three Numeric Bases Regulators Require
- Why a Reasonable Person Misreads an Illustration
- What Research Can and Cannot Tell You
- What a Financial Professional Should Do with the Illustration
- When the Illustration Is Not a Reason to Act
- Frequently Asked Questions
- Key Terms
- References
What a Life Insurance Illustration Actually Is
A life insurance illustration is a projection, not a contract. The NAIC describes it as a presentation given to prospective or new policy owners that shows how the policy should perform under the specific circumstances set out in the illustration (NAIC). The operative words are should and specific circumstances. Those two words are doing a lot of work, and most misunderstanding traces back to skipping over them.
Think about what “specific circumstances” means in practice. The insurer has to assume something about interest rates, about the charges it will deduct, about how long you keep paying. Feed in different assumptions and you get a different page of numbers. So the illustration is a model of one possible path, dressed up in the precision of a spreadsheet.
There is a term worth defining now, because it runs through everything below: a non-guaranteed element is any value in the illustration that depends on assumptions the insurer can change later — as opposed to a guaranteed value, which the policy contract locks in. Hold onto that distinction. It is the whole game.
An illustration is a planning aid. It helps you see the shape of a policy. What it is not is a receipt for money you will one day collect.
Three Types of Illustration You May Encounter
Model #582, the NAIC’s illustrations regulation, defines three kinds of illustration, and knowing which one you’re holding tells you what it’s for. According to the NAIC, the three types are a basic illustration, a supplemental illustration, and an in-force illustration (NAIC).
Basic Illustrations
The basic illustration is the one used in marketing the policy, and it shows both guaranteed and non-guaranteed elements of the policy, per the NAIC (NAIC). This is usually the document you receive when someone is presenting a policy to you. Because it carries both the locked-in numbers and the hopeful ones side by side, it is also where the two are easiest to blur together.
Supplemental Illustrations
A supplemental illustration is the second of the three types named in Model #582. The material available here names it as a distinct category alongside the basic and in-force illustrations without spelling out a separate consumer-facing definition (NAIC). If someone hands you a page labeled “supplemental,” the safe move is to ask how it relates to the basic illustration it accompanies and what assumptions changed between the two.
In-Force Illustrations
An in-force illustration is an update on a policy you already own. The NAIC notes that updates on a policy are provided in the form of in-force illustrations (NAIC). This is the type you’d request years down the line to see how the policy is actually tracking against what was originally shown. If your policy has non-guaranteed elements, an in-force illustration is how you check whether the optimistic path is still on the table or has quietly narrowed.
Knowing the type matters because each one answers a different question: the basic illustration asks “what might this policy do,” and the in-force illustration asks “what is this policy doing now.”
Guaranteed vs. Non-guaranteed: The Distinction That Changes Everything
Everything in an illustration falls into one of two buckets: guaranteed or non-guaranteed. Get this sorted and the rest of the page becomes readable.
Guaranteed values are the floor the contract promises. Non-guaranteed values rest on assumptions the insurer is allowed to revise. This is not a technicality buried in fine print — regulators require the fine print to say so out loud. Under Model #582, any illustration of non-guaranteed elements must be accompanied by a statement that the benefits and values are not guaranteed, that the assumptions behind them can be changed by the insurer, and that actual results may be more or less favorable (NAIC). Read that statement when you find it. It is the insurer telling you, in its own words, that the good-looking column is a projection.
Why does this distinction get blurred? Part of it is a question the NAIC itself suggests you ask: what part of the premium or policy value isn’t guaranteed? (NAIC). If you can’t answer that from the document, you don’t yet understand it.
Regulators have openly recognized these documents can be hard to follow. Back in 2016, concerns were raised at the NAIC about consumer understanding of complex life insurance products such as indexed universal life (NAIC). A working group later set out to explore how the narrative summary required by the illustrations regulation could be enhanced to promote consumer readability and understandability (NAIC). If the people who write the rules think readability needs work, feeling lost is not a personal failing.
One quiet complication sits underneath all of this. A dollar shown in policy year 30 is not a dollar of today’s spending power — the U.S. Bureau of Labor Statistics notes that the purchasing power of a dollar changes over time (U.S. Bureau of Labor Statistics). A big far-off number can look larger than it will feel.
The distinction between guaranteed and non-guaranteed is not a reason to distrust the illustration. It is the reason to read both columns instead of just the one with the bigger numbers.
The Three Numeric Bases Regulators Require
Illustrations don’t show non-guaranteed numbers just one way. The regulation requires a numeric summary built on three separate bases, so you can see the same policy under three different sets of assumptions side by side. According to the NAIC’s examination guidance, those three columns are policy guarantees, the insurer’s illustrated scale, and the illustrated scale with the non-guaranteed elements reduced (NAIC).
Base 1: Policy Guarantees
The first basis shows the policy guarantees (NAIC). This is the floor — what the contract commits to regardless of how the insurer’s assumptions play out. It is the most conservative column on the page. It is not, by itself, the whole picture, and reading only this column can understate what a policy may do just as reading only the optimistic column overstates it.
Base 2: The Insurer’s Illustrated Scale
The second basis is the insurer’s illustrated scale (NAIC) — the set of current, non-guaranteed assumptions the insurer is showing. This is usually the most attractive column, and it is the one to treat with the most care. Nothing here is promised.
Base 3: The Illustrated Scale, Reduced
The third basis is a middle scenario. It uses the illustrated scale but dials the non-guaranteed elements back: dividends at 50 percent of those in the illustrated scale, non-guaranteed credited interest at the average of the guaranteed rates and the illustrated rates, and non-guaranteed charges — such as term insurance charges and mortality and expense charges — at the average of the guaranteed and illustrated rates (NAIC). Note what this is and isn’t. It is a stress scenario partway between guaranteed and fully illustrated. It is not the worst thing that can happen; actual results, as the required disclosure says, may be more or less favorable (NAIC).
When must these summaries appear? Model #582 requires the summary to be shown for at least policy years five, ten, and twenty, and at age 70 if applicable; for multiple-life policies it must show years five, ten, twenty, and thirty (NAIC). There is also a year-by-year requirement. A basic illustration must include the figures for each policy year from one to ten and for every fifth policy year after that, ending at age 100, policy maturity, or final expiration (NAIC). And if coverage would cease before maturity or age 100, the year coverage ends has to be identified for each of the three bases (NAIC). That last requirement is worth hunting for. A column that runs out of coverage in year 22 is telling you something the headline number won’t.
The three-basis structure exists because one column can mislead. Seeing guarantees, current assumptions, and a reduced scenario together is what lets you read the policy as a range rather than a single hopeful line.
Why a Reasonable Person Misreads an Illustration
Smart people misread these documents in predictable ways, and it has little to do with intelligence. It has to do with how attention and intuition work. A few patterns from decision research map directly onto the illustration grid.
The first is where your eye goes. Research on salience finds that a consumer’s attention is drawn to the standout attributes of a choice (Bordalo, Gennaioli, & Shleifer, 2013), and that people attach disproportionate weight to those salient attributes (Bordalo, Gennaioli, & Shleifer, 2013). On an illustration, the large far-future value in the illustrated-scale column is the salient thing. The modest guaranteed column sits right next to it, quieter, and gets underweighted. These findings describe a general pattern in how attention works; they are not a claim that any particular reader will make this mistake.
The second is anchoring. Studies of how people value insurance-type products find that the numbers people land on are sensitive to anchoring — starting values pull the final judgment toward them (Brown, Kapteyn, Luttmer, & Mitchell, 2017). The big illustrated number can serve as an anchor that colors how you judge everything else on the page. This is an association observed in study populations, not a prescription about what you personally will do.
The third is exponential growth bias — the pervasive tendency to linearize exponential functions when judging them intuitively (Stango & Zinman, 2009). The same research shows this bias helps explain why people underestimate a future value given the other terms (Stango & Zinman, 2009). Applied here, intuition is a poor guide to how a small change in an assumed rate compounds across decades. The gap between Base 2 and Base 3 in year 30 may be far larger than intuition expects — which is exactly why the reduced column is printed, not left to the imagination. Again, a documented tendency across people, not a verdict on you.
There is also money illusion — the tendency to think in nominal rather than real terms (Shafir, Diamond, & Tversky, 1997). It pairs with the purchasing-power point from earlier: a large nominal figure in a distant year can feel bigger than its real value. This describes a general representational bias, not a rule about any individual.
None of this means the illustration is designed to trick you or that anyone is acting in bad faith. It means the format plays to ordinary features of human attention. Knowing the traps is how you read past them.
What Research Can and Cannot Tell You
The behavioral studies above describe patterns across groups of people. They do not predict what you, specifically, will do with a specific illustration in front of you. An association found in an experiment is not a diagnosis of an individual, and none of this research characterizes any life insurance product as a good or bad buy — it only describes how people tend to process numbers and choices. Individual responses vary widely. Treat these findings as a reason to slow down and check your own reading, not as a script for how the decision must go.
What a Financial Professional Should Do with the Illustration
Knowing what a competent professional owes you turns a confusing document into a set of questions you can ask. Standards vary by credential, so this section describes what one well-known standard — the CFP Board’s — requires of the professionals it governs. Not every financial professional holds the CFP® designation, and standards for other designations may differ, so it’s worth confirming what applies to the person across the table.
Under the CFP Board’s rules, a professional’s competence means having relevant knowledge and skill and applying it (CFP Board). For a life insurance illustration, that means being able to explain what each column rests on, not just read the big number aloud.
They should also weigh alternatives. The CFP Board’s guidance says a professional must, where appropriate, consider and analyze one or more alternative courses of action, including the material advantages and disadvantages of each (CFP Board). When selecting a product, they must consider how it implements the recommendation and its advantages and disadvantages relative to reasonably available alternatives (CFP Board). So a good question is: what else did you look at, and why this?
Cost is one of those factors. The CFP Board notes that cost is an important factor among several a professional must analyze (CFP Board); it also says that if the professional analyzes the advantages and disadvantages and determines a higher-cost option is in the client’s best interests, they may recommend it (CFP Board). Cost matters, but it is not the only thing. Before you buy any policy, the NAIC’s plain advice still holds: be sure you can afford the premium (NAIC).
Two more duties are worth naming. A professional must discuss the basis for the choice, the timing and priority of acting, and disclose and manage any material conflicts of interest (CFP Board). And where they have monitoring responsibilities, they must analyze progress toward your goals at appropriate intervals (CFP Board) — which is exactly where an in-force illustration comes back into the picture years later.
The point of naming these duties is not to tell you whom to hire. It’s so the illustration stops being a document that happens to you and becomes one you can interrogate.
When the Illustration Is Not a Reason to Act
An illustration showing attractive numbers is not, on its own, a reason to buy anything. Sometimes the most sensible response to a beautiful projection is to do nothing yet.
Start with the threshold question the NAIC puts first: decide whether life insurance is even necessary (NAIC). An illustration answers “what might this policy do,” not “do I need this policy.” Those are different questions, and the second comes first.
Affordability is the next gate. The NAIC’s guidance is blunt: before you buy, be sure you can afford the premium (NAIC). A policy whose non-guaranteed projections look wonderful but whose premium strains the budget can lapse — and a lapsed policy delivers far less than the illustration ever showed. If you already hold coverage that fits your situation, keeping what works may serve you better than replacing it on the strength of a projection. None of this resolves your particular decision; it names the checks worth running before an illustration talks you into anything.
Frequently Asked Questions
Is a life insurance illustration a contract? No. An illustration is a depiction showing how a policy should perform under specific circumstances the insurer sets out (NAIC). The contract is a separate document. The guaranteed values are what the contract locks in; the rest is projection.
What’s the difference between Base 1 and Base 2 in an illustration? Base 1 shows the policy guarantees — the contractual floor. Base 2 shows the insurer’s illustrated scale, a set of current, non-guaranteed assumptions (NAIC). Base 1 is committed; Base 2 can change.
Can the non-guaranteed values change after I buy the policy? Yes. The required disclosure states plainly that non-guaranteed benefits and values are not guaranteed, that the insurer can change the assumptions behind them, and that actual results may be more or less favorable (NAIC).
What is an in-force illustration? It’s an update on a policy you already own, provided in the form of an in-force illustration (NAIC). Owners use it to see how a policy is tracking against what was originally shown — useful when a policy has non-guaranteed elements.
What should I ask a financial professional reviewing an illustration? Ask what alternatives they considered and the advantages and disadvantages of each (CFP Board), and ask them to disclose any conflicts of interest (CFP Board). Confirm what credential and standards apply to them.
Key Terms
Illustration — A presentation given to prospective or new policy owners showing how a policy should perform under specific circumstances the insurer sets out (NAIC).
Basic illustration — The illustration used in marketing a policy; it shows both guaranteed and non-guaranteed elements (NAIC).
In-force illustration — An update on a policy you already own, used to see how it is performing over time (NAIC).
Non-guaranteed element — A value in the illustration that depends on assumptions the insurer can change; the accompanying disclosure states these are not guaranteed and actual results may be more or less favorable (NAIC).
Illustrated scale — The set of current, non-guaranteed assumptions the insurer uses for the Base 2 column (NAIC).
References
CFP Board. (n.d.). Code of ethics and standards of conduct. https://www.cfp.net/ethics/code-of-ethics-and-standards-of-conduct
CFP Board. (2019, February 28). Identifying and selecting goals and analyzing course(s) of action. https://www.cfp.net/ethics/compliance-resources/2019/02/focus-on-ethics—identifying-and-selecting-goals-and-analyzing-courses-of-action
CFP Board. (2024, November 19). Applying the duty of competence to financial advice, including life insurance products. https://www.cfp.net/ethics/compliance-resources/2024/11/applying-the-duty-of-competence-to-financial-advice-including-life-insurance-products
National Association of Insurance Commissioners. (2001, April). Life insurance illustrations model regulation. https://content.naic.org/sites/default/files/model-law-582.pdf
National Association of Insurance Commissioners. (2021, December 15). Chair report: Life insurance illustration issues (A) working group. https://content.naic.org/sites/default/files/committee_related_documents/LIIIWG%2520CHAIR%2520REPORT%2520formatted.pdf
National Association of Insurance Commissioners. (2022, August 22). Chapter 23—Conducting the life and annuity examination. https://content.naic.org/sites/default/files/inline-files/Chapter23_AnnuitySpecific08-22-22_0.pdf
National Association of Insurance Commissioners. (2023, September 6). What type of life insurance is right for you? https://content.naic.org/article/consumer-insight-what-type-life-insurance-right-you
National Association of Insurance Commissioners. (2026, January 8). Life insurance illustrations. https://content.naic.org/insurance-topics/life-insurance-illustrations
Stango, V., & Zinman, J. (2009). Exponential growth bias and household finance. The Journal of Finance. https://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.2009.01518.x
Bordalo, P., Gennaioli, N., & Shleifer, A. (2013). Salience and consumer choice. Journal of Political Economy. https://www.journals.uchicago.edu/doi/10.1086/673885
Brown, J. R., Kapteyn, A., Luttmer, E. F. P., & Mitchell, O. S. (2017). Cognitive constraints on valuing annuities. Journal of the European Economic Association. https://academic.oup.com/jeea/article/15/2/429/2837137
Shafir, E., Diamond, P., & Tversky, A. (1997). Money illusion. The Quarterly Journal of Economics. https://academic.oup.com/qje/article-abstract/112/2/341/1870915
U.S. Bureau of Labor Statistics. (2023, February 9). Purchasing power and constant dollars. https://www.bls.gov/cpi/factsheets/purchasing-power-constant-dollars.htm