Your Whole Life Policy Illustration

How can you tell if the policy you are considering is the best choice for your needs? Obviously, you want quality coverage at a competitive cost. But a life insurance product is a highly sophisticated, actuarially designed financial product. The product you are considering may have taken a year or more to develop, based on dozens of factors and millions of pieces of information. So evaluating your policy involves more than a quick glance at the premium table and insurance amount. You should also review each page of your policy with your agent. Nonetheless, you can get a better understanding of how your policy will fulfill your needs over the long term, how it can reasonably be expected to perform for you and your family — not just today, but every year for your entire life. The key is to learn how to read the policy illustration provided by your agent.

How to Read a Policy Illustration
A policy illustration for a permanent cash value whole life policy is a computer-generated document that shows how policy values develop over time. Your illustration provides a year-by-year snapshot of how a policy's guaranteed minimum values, as well as non-guaranteed values develop. Specifically, it shows relationships between premiums, guaranteed cash values, guaranteed death benefits and non-guaranteed cash values, and non-guaranteed death benefits based on the company's current dividend scale, which is not guaranteed.

An illustration is not part of the policy and is not a contract. However, it is a valuable tool to help your agent explain your policy.

At first glance, an illustration can look quite confusing. So, here are a few pointers to help you understand your policy's illustration:

• Review the entire document, starting with the proposal page. This page identifies the type of policy, face amount, premiums and other relevant information. Then note that the rest of the illustration consists of columns that show changing values year-by-year. Note: The illustration should have no highlighting, underlining, or any other marks on it.
• Recognize the difference between guaranteed and non-guaranteed cash values. Your guaranteed cash values are just that — the policy's guaranteed values. Provided all premiums are paid when due and no policy loans are taken, this is the amount of cash value in the policy each year — guaranteed.
• Your total cash value is the sum of the guaranteed values and the non-guaranteed values. This number provides an idea of how your policy values could look over time. The figures are based on the company's current dividend scale continuing in the future. They should not be viewed as guarantees or a prediction of future performance.
• Be aware of the assumptions used in the illustration. Examples: That it is based on the current dividend scale, which is neither guaranteed nor an estimate of future performance; that there are no policy loans against the cash value; that dividends are used to purchase paid-up additions. All these will have an impact on future values.
• Ask questions. An illustration can be fairly complicated, so keep in mind that the only dumb question is the one you don't ask. Your agent will be glad to explain information or footnotes that you do not understand.

A Word About Dividends
Because whole life insurance policies involve long-term guarantees and premiums are guaranteed never to increase over the life of the policy, premium rates are set conservatively to provide a margin of safety. The "unused" portion of the premium determined not to be necessary to provide coverage and benefits or increase the company's contingency funds surplus can then be returned to the policyowner in the form of annual dividends. The actual amount of the dividend depends on the company's experience in the areas of investment return, mortality and expenses.

Dividends can be used a number of ways. They may be paid in cash, used to help pay premiums, or used to purchase additional coverage. If a policyholder elects to accumulate dividends by leaving the dividends in the policy or purchasing paid-up additions, after the policy has been in force a number of years it may be eligible for New York Life's Premium Offset Proposal (POP). Under POP, these accumulated dividend values can be used to pay the policy premiums.

Ideally, once POP has been elected, and provided dividends are paid as originally illustrated, you may not have to pay premiums out-of-pocket again. Keep in mind that the policy can "un-POP" under certain circumstances — such as if you change your dividend election or if the dividend scale decreases in future years. Should that happen, you may need to resume paying premiums with out-of-pocket funds.

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